Build a large portfolio of SFR or just buy an apartment complex?

17 Replies

I have liquid capital coming my way of which I'd like to put about $100,000 to work. Is this amount realistic to be considering buying an apartment complex? I want to leverage other people's money through REI, and am weighing strategies. Building a portfolio of single family residences seems like a long, tedious process of marketing to find off-market properties, BRRRR, supplemental creative finance, etc.

Can anyone with experience acquiring an apartment complex share some numbers from the deal? Anyone have a large SFR rental portfolio that wishes they would have just bought an apartment complex from the start or vice-versa? Why?

Originally posted by @Jonathan Studdard :

I have liquid capital coming my way of which I'd like to put about $100,000 to work. Is this amount realistic to be considering buying an apartment complex? I want to leverage other people's money through REI, and am weighing strategies. Building a portfolio of single family residences seems like a long, tedious process of marketing to find off-market properties, BRRRR, supplemental creative finance, etc.

Can anyone with experience acquiring an apartment complex share some numbers from the deal? Anyone have a large SFR rental portfolio that wishes they would have just bought an apartment complex from the start or vice-versa? Why?

 You can't go wrong with either, just make sure you do your research and due diligence. I have a portfolio that has both and it dose well, but that's because my market can support this. 

I have a couple of Duplexes and a few SFR's. Now I exploring the prospect of jumping into Large Multifamily unit, by way of syndication. My research leads to the following points to consider, if you want to be an active investor for large multiplexes.

1. If you are a beginner, as you are one, you need a mentor to walk you thru the complex process.

2. You need a team comprises of CPA, Legal, Property Managers, Lenders etc. A good Mentor will help in this process.

3. Familiarize with numbers.

4. Locate markets.

5. Many more.....

"Depends on your time horizon and goals" is the classic answer. IMO if you have the time and passion for it, jump into a small MFH directly (6-12 units) or so just to get your feet wet and your network built. The economies of scale are there. Then you can learn the ropes of managing it (or managing the PM) and move on to bigger properties. To me, I'd then take some of that money and diversify it just a bit into either SFH, notes, or passive syndications just so you have multiple streams trickling in.

Good luck!

@Jonathan Studdard

you described the deal-making process as "long" and "tedious." I think that's a pretty good tell. :)

If you're a cash-flow, value-add investor, both routes require quite a bit of that type of work, especially now that inventory is so tight in most major metros. To find a deal that pencils, you will probably have to pound-the-pavement long and hard. If that prospect doesn't excite you, then you'll be trading a lot of "work" to get a little more money. And that's just to find the deals, nevermind financing, rehabbing, leasing, operating and exiting the deals.

Personally, I love prospecting and underwriting deals, even if I immediately throw most of them in the garbage afterwards. So it's not "work" for me, it's profitable fun. If it's not going to be fun for you, it may not be worth your effort, depending on how you value your time vs money, so please consider that.

Now specific to your question: first question for you is, how many houses does 100K actually get you in your target market? Even leveraged at 4:1 (25% down), that's 400K worth of assets. Remember, you'll need to leave some reserves. So I'm guessing that's 2-3 houses using conventional financing?

If that's the case, I think i'd rather buy a single quad. You can find those on-market easily enough, so that will help eliminate a lot of the tedious work, and you can still use conventional residential financing. That's a LOT less work than closing 2-3 separate loans.

However, if you're an appreciation player in an appreciation market, then I'd rather go SFR.

All that said, if you don't enjoy the game and you aren't trying to build an empire, then you should just go passive like Chris mentioned. You'll be giving up a few points of return (maybe), and your biggest job is to find a syndicator that you trust, then cash the quarterly checks.

Hope that helps!

James Kojo

$100k will get you into around $350k worth of property (with no reserves). In some markets, you can get SFR and small multifamily with that amount...not apartment complexes. If you are raising capital, you can go larger.

Thanks for the feedback guys. I should specify that I will have $100k to invest and about $100k in reserves. I know REI is a long-term wealth-builder, but the SFR portfolio seems like it will take many years to build and I will be limited to how many I will be able to get. I am wondering what size apartment complex (or even MFR portfolio) I could possibly acquire with my funds and what the cash flow would look like for one versus the other. I don't want to spend the time building the rental portfolio if it will take me 10 years to create the same cash flow that I could have got off the bat with an apartment complex if that's an option.

@Jonathan Studdard : At Better Coast Capital, we facilitate investments of SFR and duplex properties for our clients. By working with developers from the start, we are able to secure great pricing and make sure the units are "tenant proof" rentals. Currently we are offering duplexes in a Dallas-Fort Worth area development that are cash flow positive. If you're interested in seeing how our units pencil out, we'd be happy to show you a pro forma. That may give you a good idea of what you can afford and the kind of cashflow you can expect. Feel free to reach out in a direct message.

So can someone even buy say a $500,000 apartment complex with $100,000 down and $100,000 in reserves?

How does lending differ on the two?

What is appreciation like on an apartment complex vs SFR portfolio over say 30 years?

What is the immediate cash flow like on either vs in 30 years?

Which is the most realistic option to produce financial freedom for someone starting out with $200,000 in their bank account?

Hello @Jonathan Studdard

Thank you for bringing up this topic as I too am in a similar situation. I've got limited experience in REI but luckily purchased a family member's condo in 2012 in Jersey City (240k). I'm now working with a realtor I found on BP to sell it as there is no cash flow and I don't think the unit will appreciate much further. I think it should sell for around $400k (I have 170k left on the mortgage). I plan on using another BP member to conduct a 1031 exchange to reinvest in new rentals but, like you, keep going back and forth over putting the money towards a small/medium size apartment complex or buying 2-3 SFR. I truly wish I had the answer for us both!

Since I have 1 other SFR in my "portfolio" I know that marketplace better while I have no experience with regards to multi-unit apartments in investment worthy cities. Having more doors is definitely enticing and seems to be the way many other's have growth their wealth, but without a mentor and learning solely from the interwebs, I have been hesitant about going big.

I know you're probably weighing pros and cons in your mind daily, as I am, but here's to hoping the BP community can steer us in the right direction so in a few years we can be posting our process/results for the next folks!  Hang in there, message me if you want to keep tabs on each other's progress or musings.

Best,

Steve

@Jonathan Studdard usually for investments, lenders require 25% or higher downpayment; for complex, maybe ever higher downpayment (like 30%). if you do BRRR, you could put down 20%. I saw banks do 15% without PMI.

I don't have much experience with apartment complex. for the multiple family I own, the valuation is dependent on the Cash flow or CAP rate, and comparables. But SFP's prices are heavily replying comparables - similar house price nearby.

it is very hard to say to tell the immediate cash flow. every area is different. For any buy and hold deals, I am okay with 10% cash on cash return. If I invest $100k, I am expecting $10k per year ($800 / month). I know people get 20%.

Well both have advantages and disadvantages ofcourse. It really depends on what your short, medium and long term goals are. Once you are clear on those, the decision of which is "better" should be easy. SFR is a perfectly fine way to start small and acquire assets but there are complications associated with financing as you scale. MF has its own set of challenges but benefits from economies of scale. I agree with @Harinath Pottam .  You would benefit from a good mentor/coach before you pull the trigger on either.  You need to have clarity on your model and what you really want. 

@Jonathan Studdard

It depends on what your end goal is. if you don't think that is enough capital to buy an apartment, go out and find a partner.  If you want to scale and achieve some type of economy of scale, I would focus on multifamily. We started with 87,000 on our first 25 unit deal.

Gino

Originally posted by @Jonathan Studdard :

So can someone even buy say a $500,000 apartment complex with $100,000 down and $100,000 in reserves?

How does lending differ on the two?

What is appreciation like on an apartment complex vs SFR portfolio over say 30 years?

What is the immediate cash flow like on either vs in 30 years?

Which is the most realistic option to produce financial freedom for someone starting out with $200,000 in their bank account?

I'm in escrow for a MF property for around the same price and am putting down around 235K and am expecting minimal cash flow after accounting for debt costs... probably around .8 to 1K per month (using admittedly rosy figures). GRM for the property is just over 8.

Your questions are very general, but I had the same questions when I started out also. My only advice would be to spend lots of time on this site, read the articles and listen to the podcats, read through the articles here... https://www.therealestatecrowdfundingreview.com/investing-tutorials, and network with folks local to you.