Cost Segregation Expert and Investor 路 Lakewood, NJ 路 Member since 2017 路 1k+ posts 路 1k+ votes
I had a great conversation with a friend yesterday who owns over 100 units, all of which are 1-8 unit properties.
He told me he is looking to scale up into larger multifamily properties 40-100 units. His claim was that he could not scale. He has a full time 'handyman/contractor' on staff , and all of the properties are within a 20 mile radius. However, the expenses of all of those small properties, including turnover and rehab just does not produce enough cashflow.
What do you all say? If MF the only option? Or do you think he can scale buy more of the same kind of properties?
I have invested in SFR, and am passionate about MF, so I encouraged him to go for bigger properties.
So Warren Buffet's Group (Invitation Homes) own 82,000 SFH. He bought at a discount during the crash and originally was only going to hold for 5 years. They still own them 7-10 years later. You can scale anything it just depends on your own definition of scale. Is your plan to hold property forever SFH works great. Cash flow on sfh should be greater than MF per door. Example cash flow per door on MF might be $150-200 while sfh might be 400-500. Selling a sfh is much easier then a MF. There are benefits to each. Scaling is all about perspective.
@Yonah Weiss I currently have 380 doors. 130 are sfrs and the rest are made up of larger multifamily deals. Based on cash flow, I have been able to make more money on my sfrs. However, if I鈥檓 looking at what has appreciated faster and has the best debt option, it has been the larger multifamily projects.
@Serge S. As someone also in the Phx metro area you make a great point about looking at the late stage in regards to the risks of SFR. Especially in Phoenix Metro. As a newbie I'll definitely take that into consideration!
@Alexander Felice - The Fayetteville market. Yes, they are bought and sold everyday, (well not really due to inventory) but that has nothing to do with them being over priced. People are willing to pay a premium for MF.....
@Yonah Weiss I think anything is possible if you put your mind to it. But with that being said, one strategy will cause way more brain damage than the other. Facts and statistics say that economies of scale are more favorable when you go larger. You can now hire a professional management team that you're residents will ultimately end up paying for you. Single family is more management intensive and riskier. The more doors the better. The more doors you have, the more you risk is spread out. Not to mention staying above that 5 unit mark, puts you in a different category. You're a commercial real estate investor at that point. And who wouldn't want the tax benefits. I think you know about that all to well my friend. Cost seg KING @Yonah Weiss
The same can be said for single family. I don't even try to buy SFR in the ville anymore because the prices are driven up so high by new investor mania that it doesn't seem to be worth my time.
And yet, people are buying them and making money.
'overpriced' is relative to market conditions and there are always deals.
Scalability though, is not relative to market conditions. Its way more efficient to buy in bulk, so if the choice is to buy overpriced SFR or MF then the opportunity for profit resides heavily in multifamily space. Economies of scale is the key factor here and SFR ain't got any 馃お
Nice follow up to this post. After several months of searching and learning. This friend just closed his first big MF property 153 units spread over three apartment complexes in the same town! He's not on BP so I figured, I would share it for him.