Scaling Up From 4 Units to Bigger Multiplexes

17 Replies

Right now I have a handful of 2 and 4 unit properties. I have seen the benefits of multiple units under one roof, foundation, etc...

My current properties seem to be reasonably profitable over the last couple years. The next steps we are considering are adding more 4 units vs. higher unit properties. I’m concerned about the “grass is greener” outlook for higher unit properties vs the 4 units that we know.

Can anyone chime in that has made the jump to higher unit multiplexes? Pros/cons/regrets/wish you had scaled sooner?

Thanks!

I had SFR and duplexes before jumping into a 12 unit single building and there is no looking back for me. Price per door is 55K in the 12 unit; price per door is 200k in my duplexes, and rents are only double. Yes, they are in different locations; but still. Drawback is it is much harder to find that winner 12 unit than it is to score a good duplex; but it is hard to look at duplexes any more. Duplexes are easier to sell and appreciate faster; so having both in your portfolio is a good idea.

@George M. in my view having a mix of 4 units and 20 units is not a bad idea, a good deal is a good deal.  if you self manage and they are all in the same area then it should be an issue. 

Im in the market for 20-40 units at the moment but pick up some 3-4 units if they are solid opportunities. 

Some markets have more 2-4 units then larger apartment buildings so unless you go out of area you need to deal with what you market offers. 

personally duplexes are less attractive then 3-4 units because the later offer better cash flow and less vacancy risk. 

Check out my Blog post here for 5 Reasons Why Investing in Multifamily Makes More Sense. 

Originally posted by @Hadar Orkibi :

@George M. in my view having a mix of 4 units and 20 units is not a bad idea, a good deal is a good deal.  if you self manage and they are all in the same area then it should be an issue. 

Im in the market for 20-40 units at the moment but pick up some 3-4 units if they are solid opportunities. 

Some markets have more 2-4 units then larger apartment buildings so unless you go out of area you need to deal with what you market offers. 

personally duplexes are less attractive then 3-4 units because the later offer better cash flow and less vacancy risk. 

Check out my Blog post here for 5 Reasons Why Investing in Multifamily Makes More Sense. 

Thanks Hadar. I started with duplexes then moved to 4 unit properties because they tend to do better on a cash flow basis.  

However I have seen better value appreciation in the duplexes.  I unloaded one for that reason. 

I started out self managing but have since switched to using a property manager. I still self manage one duplex though because I enjoy it and I can manage one property and hold down a full time career.  

I read a response a while back from a pro who shared a story of a lady who traded some solid performing low cap properties for higher on paper cap rate multiplex in another market that was a disaster.  Just curious of other people’s stories since we seem to be at that crossroads.  Wait a bit and save for a larger property or keep picking up decent 4 units.

@George M.

Well, if she sold in good solid areas and bought the high yielding ones in D type areas without been educated and knowing the in and outs of the market she may got burnt.

But if she would have bought say 20 units In good parts of Dallas TX for example, I bet she would have been laughing all the way to the bank.

Its all about making the right inform decision. 

I sold a 4 plex that had capital gain of 900k in 3 years, and used the equity to buy commercial property that is generating solid income.  that 4 plex had a lot of equity but hardly no cash flow. ..  now the 800k or so equity is generating around 9.5% Net income.

Hi @George M. I started out with small units as well before crossing the bridge to multifamily investments. I have been successful doing so, I am more than happy to answer any questions that you might have. Feel free to message me privately.

@George M. No worries! Just remember to stick to actuals and partly ignore pro forma / APOD info. You want rent rolls, 2-3 year tax returns, and lease agreements. You then base your purchase price on the market cap rate based on the NOI. Look for value-add plays where the management is not doing well (e.g., low rents, deferred mx) or you can be creative (e.g., rubs, laundry). Best of luck!

Originally posted by @Frankie Woods :

@George M. No worries! Just remember to stick to actuals and partly ignore pro forma / APOD info. You want rent rolls, 2-3 year tax returns, and lease agreements. You then base your purchase price on the market cap rate based on the NOI. Look for value-add plays where the management is not doing well (e.g., low rents, deferred mx) or you can be creative (e.g., rubs, laundry). Best of luck!

 Thank Frankie.  I appreciate the suggestions.  This is really helpful.

Hey George, I'm sort of in your spot, maybe  a few units behind. The larger I grow my unit size the more I understand that things work better with more units. I too would like to step up, the biggest reason being that I will have more control over the appreciation of the building. Obviously financing changes over 4 units, but as I've been evaluating deals larger than 4, the financing hasn't been the deal breaker as much as sellers thinking their property is worth more than it is due to so much deferred maintenance. 

I'm in the same place.  Ready to scale up.  I have had similar experiences with apartment owners wanting more for their properties, than the numbers equate to.  I have found a few good opportunities, and trying to raise additional capital for the down payment portion currently.