From Single Family Home to Multifamily

11 Replies

Hello everyone! Let me start by saying that I love BP podcast and this forum. I am learning a lot from you all. Just a little background about me. I was born and raised in Mexico City. I come from a large family where there was no high expectations but also no dreams were encouraged. Attending and graduating from college was not in our family talks. It was an imaginary obstacle that I had to break. I thought no one in my family will ever be a college graduate. I was child number five but the first one graduating from college. I came to Texas in 1996 with my now husband. I went back to school to learn English and get an MBA in Corporate Finance (2000). I have worked as bilingual teacher but mainly I have worked for big corporations. Had many kids and with this sacrifices in career advancement has to be made. I’m 47 now but feel better than I did in my 30’s. I owe it to long distance running and all the awesome friends I have made in dear Fort Worth, Texas. Now, regarding real estate and current situation. I have a full time W2 job with an interesting company. I love what I do there. However, real estate investing is very exciting to me. I have been an active real estate agent in Texas for 5 years. I have mainly represented my family in real estate transactions. Our first investment back in 2012 happened causally since we lived in that house and ended up renting it out. In 2014, we bought our second investment property, improved it and rented it out. In 2013, we bought our primary residency where we lived for 3 years. We had all intentions to sell it and moved to Aledo, Texas where the school were better and there was more land. Two days before closing the buyers changed their mind. I cried a little since we needed the sale proceeds to replenish savings used for down payment in the new home. We knew someone was interested in leasing the house and signed a 2-year agreement. That became our third rental property. Last year, Chase Bank suggest us refinance two properties and offered us cash back based on good appraisal and equity built. Had no idea that was a possibility. Took the cash and decided to buy another investment property that happened to be a duplex. I’m the property manager for these rentals. All tenants reach out to me when there are issues. I also the one doing the analysis of the property and so far the investments have been profitable. Now, like I said I love real estate and BP has encouraged me to dream big. I would love to have a multi family property eventually but sometimes I also feel that I should just stop now and be happy and content with what we have. I want to retire from my W2 job when I’m 50 and dedicate my time to my family and managing property. I think I would be a great property manager. I love people and keeping track of projects. Anyway... Here is the question for you guys: Should I save and buy 2 more SFH or try to shoot for a multifamily 5-10 units? I don’t have a network of real estate investors yet. I really don’t know where to start. I have not seen a REI in Fort Worth just yet. Would you stay with SFH or transition to multi family? I appreciate your input. Sorry for the super long message.

@Lidia Bowers At this point I think it would serve you well to look at where you want to be in 10 years. To start, look at cash-flow needs/desires. If you want to replace your income, will it take cash-flow from 7 SFR/duplex rentals to that? Or 70 units? The point isn't to get specific about the *exact* number but rather to determine the "order of magnitude. Managing 10 rentals is one thing and managing 70 would be another proposition entirely. But I could make the case that managing a 70-unit apartment complex wouldn't really be that much more time consuming than managing 10 SFRs. All of your "problems" are in one place (for better or worse). That doesn't mean you can't be successful with 70 SFRs but when you're 65 years old do you really want to be running around to 70 properties?

Another factor to consider, to use my vernacular, is..."Is the juice worth the squeeze?" A lot of people just starting out on BP think that $100/month is good cash-flow for an SFR. I won't debate if that is or isn't a good number but I do know that it wouldn't be worth it for me. The SFR is a "thing" and all "things" need attention. Not to sound like a complete jerk but $100/month just isn't enough "juice" for the "squeeze" of having that property. Now if it's $100/unit and it's 20 units, then (for me) it is worth the squeeze. To take it one step further, I'm sure that people that lead large syndications wouldn't waste their time with 20 units. They can too many investors and can't make a reasonable spread. For them the "juice" might have to be 200 units in a single complex to be worth their "squeeze".

Anyway, I'd try and think through those areas first and the decide on what course might be the right one for you.

Hello there!

Thank you for your input. You have good points to think about. Before I purchase a property I run different scenarios with as much current and accurate data as possible. The four properties we have yield a 35% monthly profit after PITI expenses. The monthly rent is around $2K each. Thoughts?

Lidia, 

You have a great story. Personally I like single family properties. Multifamily are harder to find. The tenants are more transient. Maintenance is more often. When you go sell your multifamily later on the buyer will be an investor and he/she will want a deal. If you sell a single family the buyer may be looking for their future home and pay more due to emotions.

Great points above. I would echo @Andrew Johnson . If you are ok with having many different properties (single family), then you have to understand it most likely will be a slower process. When you retire at 50, is your goal to be financially independent at that point or is it to retire at 50 regardless of your financial position? If it is the former,  multifamily might be a better option for you. Not saying you can't do it with single family quickly but it tends to take a little longer. 

@Lidia Bowers . You are to be commended for your perseverance - A great success story of hard & diligent work. 

As you stated you want to retire from your W-2 Job, I would suggest you continue with SFR or 2-Plex - 4 Plex properties. It's what you know already and feel comfortable with!

If you venture into Multifamily (Apartments)  there will be a "Learning Period" of some duration, and dependent upon how much effort and work you want to devote to learning the new skills and thought processes it will detract from your other stated objectives of devoting more time to your family.

IMO - whatever you decide you'll succeed! 

@Jim Cummings - thank you for input. The trade off between family time and learning new skills is something to consider for sure. With the last duplex investment the bank required 25% down. I wonder if this requirement will be higher for a 4-plex. I’ll ask the bank. Thank you again.

@Lidia Bowers. 25% is about Standard or Typical for most Conforming Lenders on 1-4 Family Investments.  JIM

Either can get you financial freedom, but Multi-family will just leave you with more zero's. If you want to scale, then Multi-family will be the best option. To get $100k cash flow/year with SF's you will need 30-50 houses (some will say less, but I have experience that says otherwise). With 10+ unit Multi-family you will need 1-5 (maybe 10 if they are smaller) buildings to get you there.  It is much easier to deal with just a few buildings than to deal with 30-50 homes. 

Also as pointed out previously it is much easier to find a single-family home, but that is the trap in my opinion. You can buy 3 houses in a year and increased your portfolio by 3, but if you buy 1 multi-family every 5 years, you can increase your portfolio by hundreds of units. 

@Lidia Bowers you might not need to go to mfh. Figure out what your goals are cashflow per month and see where you are at and you might be there already. I talk to so many guys who could just liquidate their stocks and buy very low risk and return investments and mail in their retirement.

@Lidia Bowers Your story is very inspiring.  Moving towards owning a small apartment will stretch your abilities but you show that you have the fortitude to do it.  Places like BiggerPockets, RE Investment Meetup groups, and other free real estate groups have the information, suggestions, the conversations and contacts to help you navigate through owning an apartment.  The only way you are going to know if you want to go to the next level is to do the research.  Once you do the research, you might find it will take away the fear factor of owning an apartment so you can truly determine if it resonate with your goals.  Good Luck!

I am in the same boat  >>> OK here is where I am at I have 5 properties inc my residence my whole goal was how to live for free. 2 of the properties in Salt Lake City I converted into duplexes and cash flow $1100 on one and $1000 on the other the other rentals are sfr's and cash flow 400 on each and the last property I occupy the payment on the house I occupy is $1000 and to make my long story short I have accomplished the way to live for free and have assets...I have 300k in equity ...so the question is where do I go from here and how should I do it thanks .

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