Smaller building in nicer area or more units in average area?

Real Estate Broker · Long Island NY · Member since 2018 · 16 posts · 5 votes

I am looking for a multifamily property to purchase. My question is this- I have 1.5-2.0 million to spend but I am wondering if its best to purchase a smaller building in Boston, Ma Miami, Fl or nicer area lets say 5-7 units or a 20-25 unit in Manchester, Nh or Albany, Ny. Obviously a lot goes into this but Im thinking longer term and which will appreciate more and which I should make more money per year and have less evictions etc.

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Charles SoperPro Member

Rental Property Investor · Merritt Island, FL · Member since 2015 · 253 posts · 178 votes

With our red hot economy due for some kind of correction, going bigger might be better for the simple logic of sustainability.

If you buy a nicer 6-Plex in a nice area vs. a working class 30 unit with lower rents in a decent stable C neighborhood what happens when you get a vacancy? 3 vacancies in the 6 Plex leaves you at 50% occupancy, can you cover the note and all your expenses if that happens? How about 3 vacancies in the 30 unit? 90% occupancy, that’ll definitely cover the note and expenses (assuming you bought right).

Nice might be right for you’re choice of living conditions, but not always the right choice for your investments.

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Russell Gronsky
Specialist · Baltimore, MD · Member since 2016 · 384 posts · 318 votes
7y
@Alan Eisenberg, location, location, location. Take the most you can, in the best area that you can get it in. That's your best bet for stability, rent growth and appreciation.
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Alan Eisenberg
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Real Estate Broker · Long Island NY · Member since 2018 · 16 posts · 5 votes
7y
Im reading more and more about Grant Cardone who tells you the more units the better. However I am leaning towards better areas and less units. Thank you!
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Charles SoperPro Member
Rental Property Investor · Merritt Island, FL · Member since 2015 · 253 posts · 178 votes
7y
With our red hot economy due for some kind of correction, going bigger might be better for the simple logic of sustainability.
If you buy a nicer 6-Plex in a nice area vs. a working class 30 unit with lower rents in a decent stable C neighborhood what happens when you get a vacancy? 3 vacancies in the 6 Plex leaves you at 50% occupancy, can you cover the note and all your expenses if that happens? How about 3 vacancies in the 30 unit? 90% occupancy, that’ll definitely cover the note and expenses (assuming you bought right).
Nice might be right for you’re choice of living conditions, but not always the right choice for your investments.
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Charles SoperPro Member
Rental Property Investor · Merritt Island, FL · Member since 2015 · 253 posts · 178 votes
7y
And I think GC’s last live webinar he talked specifically about that point :)
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Zachary Bellinghausen
Member since 2017 · 143 posts · 76 votes
7y
Do you have a Broker, or any connections in Miami? The market there is not ideal for any positive cash flow. You may get a better return on a 6 month CD from the local bank. I would invest in a different area with more doors.
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Alan Eisenberg
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Real Estate Broker · Long Island NY · Member since 2018 · 16 posts · 5 votes
7y
I am looking at several areas those are just a couple of areas where I am currently looking. Im less concerned with actual areas and just more interested in trying to figure out the best size of the property as I always hire property managers. I am a licensed broker in NY and have a couple of friends in Florida who do real estate flips in Fort Lauderdale, Boca Raton and Miami. I also own some rental properties myself in Albany and Troy, Ny. I am looking to decide if buying less doors in better area or more doors in middle class or decent areas is the way to go. My budget is 1.5-2.0 million with a mortgage.
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Alan Eisenberg
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Real Estate Broker · Long Island NY · Member since 2018 · 16 posts · 5 votes
7y
Appreciate all the insight so far. Definitely good to get different point of views.
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Chase McArthur
Specialist · Washington, DC · Member since 2019 · 177 posts · 150 votes
7y
@Alan Eisenberg
What are you looking for as far as investment goals? Are you looking for cash flow, capital gains, preservation? This will determine what kind of strategy you will follow, core, core plus, value add or opportunistic.
If you were looking at $100k-$250k of capital I'd say you could be more liberal in your approach but since you are talking about 7 figures I would be alot more strategic about where you park your capital. You need to really consider your options and long term strategy. PM me and we can discuss it in further detail, if you'd like.
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Malgorzata SadowskaPro Member
Real Estate Agent · Miami, FL · Member since 2017 · 506 posts · 205 votes
7y
@Alan Eisenberg - vlueadd in a growing = highly transient market.
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Dan K.
Rental Property Investor · Boston, MA · Member since 2012 · 257 posts · 139 votes
7y
@Alan Eisenberg -- If you're looking at spending $1.5m-2.0m, with 30% down you should be able to secure a property that is between $5m and approximately $6.7m. In that range, at least in the Boston area you could potentially purchase a 10+ unit building in a decent area.
Personally I would look at a very good area, like Boston, or a larger complex in the southeast. Additionally, if this is your first RE, I would either start smaller, make sure you have an A+ team (and pay them accordingly -- possibly giving them equity), or find a partner.
Furthermore, if you are considering properties between $5-$6.7m, banks are going to expect you to have experience.
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Alan Eisenberg
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Real Estate Broker · Long Island NY · Member since 2018 · 16 posts · 5 votes
7y
@Dan K. - I already own several multifamily properties in Albany and Troy New York. I am looking to get a mortgage with 25% down to get a property 1.25-2.0 million dollars. Been a landlord for 5 years so far and have 20 units so far. Looking to get to 100!
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Dan K.
Rental Property Investor · Boston, MA · Member since 2012 · 257 posts · 139 votes
7y
@Alan Eisenberg -- If the goal is to get to 100 units (and if your a Grand Cardone follower and make that 1,000 units), I would suggest you stay in an area like Albany, Troy, Schenectady.
A property in the $1.25 to $2m range in the Boston area for example isn't going to get you very far. Additionally, unless you BRRRR, you're not going to be able to get enough cash flow from the property to continue acquiring more properties.
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Charlie MacPherson
China, ME · Member since 2014 · 3k+ posts · 4k+ votes
7y
@Alan Eisenberg @Dan K. is right - if you stay in Boston. $1.25M will get you a 3-plex in JP, South Boston, East Boston, probably Hyde Park, and E. Roxbury. You can stay sub-$1M in Dorchester, Mattapan and Roxbury - the toughest areas in Boston.
In Cambridge, $1.3M will get you a duplex. Right now, there's a 3-plex on the market for $1.65M and a 4-plex for $2.9M.
There's a 22 unit for $15.9M too. That's $722.7K per unit and it's in a very good area and includes parking. If you can swing the funding, that's going to have some nice potential.
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Ryan VienneauBusiness Member
Investor · Stillwater, NY · Member since 2015 · 149 posts · 121 votes
7y
Totally depends on what your investing goals are regarding cap rate, cash flow, and hold period. I own a property management company and several rental properties in the Albany NY area, and you can still find value add deals with cap rates above 8 with positive cash flow from day 1 if you look hard enough. Metros like Boston and Miami have notoriously low cap rates right now (3 is not uncommon), so I don't see how anything cash flows at those cap rates. The Albany area has been pretty good to us for returns.
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Josh Oaten
Investor · Phoenix, AZ · Member since 2017 · 261 posts · 143 votes
7y
@Alan Eisenberg
This all depends on your criteria and what your trying to accomplish. If your looking to do a value add job you will most likely be looking into B/C neighborhood (middle class, Blue collar). If you are looking for a buy and long term hold then you will want a very strong area with good growth.
I personally don't like the smaller stuff because I want more units of cash flow and don't want to depend on appreciation (to me thats gambling).
If you feel more comfortable in a smaller property in a real nice area then go with that, just make sure you underwrite it extremely conservatively. Alternatively you could invest your money as a passive investor. I know some guys investing in 100 unit apartments in FL so DM me if that is an option for you.
Hope this helps!
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Bjorik Mutize
Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes
7y
Those markets, yes, great rent growth and overall economics. But will you get the most bang for your buck on a price per unit basis?
You have a lot of capital, and i feel as though you can get better investments exploring less competitive, cheaper sub markets in the US with still great economics for the future.
To answer your question though i would always lean towards more units for scale purposes in a B, B-, area than less units in a A. But what does your bottom line look like now and in the future.
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Dan K.
Rental Property Investor · Boston, MA · Member since 2012 · 257 posts · 139 votes
7y
Originally posted by @Bjorik Mutize:

......
To answer your question though i would always lean towards more units for scale purposes in a B, B-, area than less units in a A. But what does your bottom line look like now and in the future.
I was just discussing this with somebody and totally disagree. I would prefer 4 doors in one property making $14,000 a month versus 20 doors with an average rent of $700 each (presumably across 5-10 separate properties). With fewer doors you have fewer kitchens, bathrooms, water heaters, roofs, etc. In addition, you have fewer tenants. Ultimately maintenance on those 4 high-end doors is going to be a lot less money and time than the 20 lower end doors.
The downside is scalability. If your average rent is around $3,500 a month per door, the acquisition costs are going to be very high. You can pick up more and more $700 a month rent units faster than more expensive units.
As others have said, it totally depends on goals. There is no generalized right answer.
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Bjorik Mutize
Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes
7y
Originally posted by @Dan K.:
Originally posted by @Bjorik Mutize:

......
To answer your question though i would always lean towards more units for scale purposes in a B, B-, area than less units in a A. But what does your bottom line look like now and in the future.
I was just discussing this with somebody and totally disagree. I would prefer 4 doors in one property making $14,000 a month versus 20 doors with an average rent of $700 each (presumably across 5-10 separate properties). With fewer doors you have fewer kitchens, bathrooms, water heaters, roofs, etc. In addition, you have fewer tenants. Ultimately maintenance on those 4 high-end doors is going to be a lot less money and time than the 20 lower end doors.
The downside is scalability. If your average rent is around $3,500 a month per door, the acquisition costs are going to be very high. You can pick up more and more $700 a month rent units faster than more expensive units.
As others have said, it totally depends on goals. There is no generalized right answer.
Yep i agree. That's why i said i would lean towards it, but it comes down to what does your bottom line look like.
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Oleg Shalumov
Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
7y
@Alan Eisenberg I would go with more units because i prefer cash flow, but you should focus on what your goals are:
- if you are interested in Cash flow then go to average area (I hope you mean no lower than C class property)
- If you are looking for appreciation, you should go for nicer area (class A/B property).
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Michael WallimannPro Member
Rental Property Investor · Western Washington · Member since 2018 · 151 posts · 60 votes
7y
If it were me I would go with more units in a good location rather than less in a great location. The middle class is always going to need a place to rent and as long as you're not buying in a war zone I feel the more units option would be safer through ups and downs in a long term buy and hold situation. Happy hunting!
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
Security in rental investing is in the middle class. High end is low cash flow and if the economy turns is high risk. There will always be plenty of renters in B class, not the case with higher class. Vacancies will be longer in A as opposed to B with a greater monthly loss. I would be investing in B class properties, the more doors the better.
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