6 Flat - Cash flow per door

21 Replies

Hi All,

I typically invest in single family and duplex rentals.  Cash flow is typically $400 and up per unit.

On a multifamily project it seems the cash flow is less per door.  I've seen it range from $100 to various amounts. 

I'm looking at a 6 flat which generates about $216 per door after I plugged in all the numbers into the BP Rental Calculator .    Doesn't seem that great to me.   

Am I not seeing the bigger picture. 

Would like to hear from those of you who invest in multi-families.

You have hit the nail on the head. Profits per door should be less on larger multi family, but so are the costs {economies of scale). I currently roughly $4-500/door on my SFH, and only $2-300/door on my multis. Spoiler alert: I make A LOT more money on my multis because of economies of scale.

@Kenneth Garrett , to me, something doesn't quite add up here. I'll address my question to @Account Closed :- If you're making less per door for multis, isn't that mainly because you've PAID (a lot) less per door too? (I don't just mean ongoing economies of scale for cap ex).

If so, then THAT would be the main reason, rather than mentioning economies of scale for repairs.

Also, BECAUSE of those economies of scale, shouldn't that be factored in as less expense per month - therefore resulting in INCREASED cash flow per door for Multis, rather than DECREASED?

Did THAT make sense? Cheers...

@Brent Coombs Hi Brent- the limiting factor in the per door profitability on Multis is cap rate. In an area where you could buy a SFH for 60k, and get $1,250/mo rent, that is because the sales price wasn't tied to current rental value, it was based on local comps of (probably) mostly owner occupied houses. Multis, priced in direct relation to potential income (cap rate), and will hardly allow you to get a spread such as SFHs. Your money is made on volume, and economies of scale. At least, that's the way it works for me.

Hope that helps. 

@Account Closed , sorry, I'm still not getting it. If you're consistently getting MORE per door (net) out of SFR's, then why would you EVER buy Multis?

Maybe we should be talking RATIOS instead?

eg. If you're getting $1,250/m PER $60,000 for SFR's but (say) only $900 per $60,000 for Multis, then why oh why would you persist in buying Multis? (And please don't say "economies of scale", because you've already said Multis give you less NET per door!) Get what I mean?...

@Brent Coombs - I guess its personal preference when you get right down to it, Brent. I find a combination of it being much easier to buy (30 settlements vs 1 settlement), manage (30 different addresses vs 1 building, 30 insurance policies vs 1 policy, 30 spring roof inspections vs 1 roof...), and yes, economies of scale ($850/yr insurance on my SFH vs $7k on the building) makes Multis more attractive to me than all SFHs. It was much much quicker and easier to acquire the volume that I needed to retire myself from the 9 to 5 doing the Multis. The other problem with the SFHs is appreciation. Not much you can do over the years to force any more than the local comps are going to give, no matter how much rents go up. Multis are just the opposite. That will be my ultimate meal ticket. It's not all about profit/door, it's about total IRR, and how much trouble it is to get there.

@Account Closed , sure, I can appreciate working smarter rather than harder. 

Some might argue that value-adding to SFRs IS a quicker way of improving ARV/IRR, rather than just relying on market rents continuing to rise at their historic percentage in order for the same cap rate to make Multis more valuable.

And, some may also argue that getting SFRs at a steep discount is much more readily do-able than finding commercial buildings at a similar discounted percentage.

They may also argue that: it's totally worth the trouble getting there by SFRs instead.

So yes: it's personal preference. Cheers...

Hey kenneth how are you doing tonight? I have also found the same problem in illinois except i'm not even getting close to 200 per door on multi's that i'm analying. I may be being overly strict on my numbers, that being said I haven't found a illinois multi not in a war zone that cash flows even 100 per door. I was analyzing one earlier today that was a 24 unit for 945k. Rents were 550 a unit everything actually looked ok, until I realized based on the previous assessment the taxes would be jumping from 21k per year to 45k if purchased at 900k. Needless to say there went the already small cash flow lol. 

Oh that's defintely part of my plan, I was strictly a buy and hold investor of small residential properties. Since I've decided to move up to commercial I haven't put a single offer in. I think I am going to have to have to find a new market to start looking into as ours the prices are up but also the taxes are crazy lol.

Thanks for all the responses.  Keep them coming. 

The average 6 flat in my area is between $500K-$600Kand up to 750K.  Taxes about 12K.  They do cash flow but like everyone I need to buy at a discount, hey were investors.  Trying to buy at around $425K.  Then It will cash flow at approximately $300/door.    I'm ok with $250 but the goal is $300. 

@Philip Williams

Yeh, I understand the war zone.  Rockford has some challenges depending on the neighborhood.  Just bought a rooming house in DeKalb (Student Housing- Northern Illinois University) cash flows like crazy just not my typical rental.  I tend to fix them up pretty nice.  Student housing there is a line that you have to take before your wasting your money but all in all not a bad investment.

Good Luck.

As people get older in age they tend to look a little less at return and MORE at the headache factor.

You have economies of scale to be more passive and put proper team structure in. For lower number of doors for SFR or multifamily you have to be more hands on generally to drive cash flow.

I do not invest in anything these days that requires a lot of intensive personal attention to make it go where it takes away from everything else I am doing. An exception would be commercial real estate development where the returns are very large and worth my time.

I have clients worth 1 million up to 100 million in net worth and the perception for many of them changes over time. As money builds up they are willing to take less return for a higher quality asset.

Example they get 8% on 2 million investment for 160,000 a year. Someone retired can live very comfortably off of that.

Someone in their 20's trying to quit their job and go real estate full time is generally willing to take on massive headache properties for perceived higher yields to try to build up ongoing cash flow so that they can sustain themselves and break free from the rat race.    

These days I analyze the total potential yield, how fast that yield will come in expected time, and how big of a headache will it be to get it? 

Well if you could buy one at 425k that would defintely cash flow! The problem i'm having is while hoping to get at a discount there seems to be no incentive for sellers to come anywhere near that far down. They know the market is hot an investors are crazy, realtors look at me as if I killed there first born if I even offer like 10k under listing haha! much less 25% you must have better experiences with realtors than I!

Use IRR. Cash flow is only part of the equation. A property with $0 cash flow could have a significantly better return than one with $400. Your investment goals come into play with this type analysis as well.

Comparing 30 year (SFR) with 20 year amortization (or some different amortization for 5+ units) is comparing apples-to-oranges if you don't use IRR.

@Mike Dymski

Mike thanks for comments. IRR is based on your initial investment. If you use private investing to fund the 25% down payment and secure seller financing or traditional bank financing for the rest how do you compute the IRR? It seems very similar to Rate of Return.

If you are purchasing properties that have all in cash flow to you (including cap ex, management, vacancy, debt service, maintenance, everything) of $200-$400/unit that also include the cost of 100% funding by others, you should stop what you are doing outside of real estate and do this full time.  You can put the pencil or spreadsheet away and buy everything you can.  Let us know if we are missing anything.

Your IRR is infinite.

@Mike Dymski

Thanks Mike. I was going through the calculation and I quickly discovered it was infinite. Its the same with CoC in my strategy. I realize I have implemented a unique structure. This is my strategy which took some time to develop it. Gotts love private funding.

@Mike Dymski hit the nail on the head.  Deals need to be compared in terms of your return on the capital you are putting into the deal. 

@Kenneth Garrett that is a very rare and favorable situation you have to not put any money in or have any "skin in the game" per say.  Might I ask how you were able to set that up?