Multifamily is the way to go change my mind

120 Replies

Hey @Isaac Johnson ,

I won't attempt to change your mind, just wanted to salute you for the killer usage of the 'louder with crowder' reference!

Multi-family house-hacking is the best strategy for new investors and I'm grateful to be able to help dozens of families use this method each year.

Looking forward to following this thread and reading the rebuttals!

Best of luck to you moving forward Isaac,

Abel

@Isaac Johnson @Abel Curiel

Like most of "louder with crowder" -- this is a very controversial topic. 

I'm on team Grant Cardone ... investing in single family or small multifamily should be short-term, value-add flips that create wealth for investment in larger multifamily properties.

Two big problems with small multifamily:

1) Lack of good property management options

2) The inability to efficiently scale

- asset new builds in decline 

- scales just as badly as SFR

- tenants have close neighbors similar to an apartment but without amenities. 

you're right that small multi should be bought by new investors......because experienced investors wouldn't bother.

@Tyler Kastelberg Not everyone has the money to buy large multifamily properties.

Some people like flipping properties but I’m not a huge fan of speculation. I would rather be building wealth over the long term with cash flow.

About the “big” problems you mentioned:

1) you can manage them yourself

2) if you live way below your means, you can save your cash, network with people, and you can easily scale.

@Isaac Johnson

You can scale but I think you want to get into larger MF asap. Was talking to someone last week locally who has about 90 sfr’s and over the last few years has began doing apartments. He said his biggest regret is not going to the bigger properties sooner. It slowed his growth focusing on the smaller properties

@Nathan Recchia Of course you do, I see why he regrets not getting into larger properties sooner, but most people will have to start out with smaller ones, and scale up, everyone obviously wants to get into larger properties, but it isn’t a bad idea to gain experience with smaller ones first, which are most likely the only thing beginners can start out with.

@Alexander Felice beginners usually don’t have the money to buy larger properties, and when they start out with something like a duplex, they get experience and knowledge, so that when they have the money to buy larger properties, they can dive in with more knowledge and experience, also I know experienced investors probably like larger properties more, but these ones still give you cash flow, and you many people scale just fine with them.

I think it is a great option when starting out.  One persons path doesn’t have to be your path.  That’s the whole point of different ways to invest.  

Everyone situations different.  You said you don’t have a ton of cash, so a owner occupant 2-4 unit gets you in the door for little money while allowing you to live for free it very cheaply.  No one says you can’t sell these properties later to move into larger more scalable properties, IE large multi families.  



@Isaac Johnson you should run the numbers on 5+ units and more so 100+ unit communities to see how they compare and it might change your mind. 2-4 units are still valued on comparable sales versus larger mutlifamilies being valued on NOI. You have more control over the value of your asset the larger you go.

@Isaac Johnson YES and agree with you that buying a duplex can be a great starter property. In fact any first good deal is a good start.

I started out buying a duplex and now I am closing 500+ unit deals. I agree with @Tyler Kastelberg that over the long run, the drawback to small assets is scale. I was working harder on my small assets compared to large multi's.

I decided to quit my CPA job and go all in. Here is a link to learn more. I quit my CPA Job to buy Large Apartment Buildings

Good luck in your journey!!

  

You will have different types of people who want to rent a small multi, an apartment and a single house.  

Just make sure you can interact with the types of people who would want to rent that type of home.

@Isaac Johnson

2-4 is probably the worst investment in my area. People pay 200-300k per unit at 3-4% cap. The ease of lending makes them terrible deals. I would pay no more than 100k a unit in my market.

5+ weeds out all the wanna-be’s that can do a 0-3.5 government product. I feel like these people are paying for experience. Single family or 5+ is the only way to go.

People are in a frenzy. They talk about real estate investing like it is a 100% lock on becoming a big shot millionaire. Not true. It's all about equity and cash flow. In that order. Good luck.

@Isaac Johnson if you have limited capital, are a beginner, and don't have many options, there isn't much better than a small multi family.  I personally think a house hack with 4+ bedrooms is just as efficient and you may be able to get better tenants (roommates) by purchasing a single family home in a better neighborhood.

Here in Vegas, the small multi families are in areas even I wouldn't house hack.  And I can muster living in low income areas for cash flow.  So if you were in Vegas, I would argue that small multi families are not a good investment for someone starting out.  A 4+ bed house hack would be best option.

@Isaac Johnson Single Family is the way to go. With advances in technology in property management you can now manage SFR like an apartment building. Tenants in SFR stay almost twice as long. SFR provides multiple exits (sell to an investor or owner occupant) versus multi family that only trades based on cap rate.

If I were young again I'd purchase a live-in 4-plex every year. Low down payment and cheap living. Once you get several of them you can sell and go bigger with your cash. I'm very much encouraging my kids to do this. We're getting our daughter started in it next year when she goes off to college. Good luck! Sioux Falls is a great market!

It's a great way to get started. You have the advantage of good long term financing and ease of management. As you go further in your investing career, scaling to larger properties will make a lot of sense. My advice would be to start as big as you can and continue to move to larger buildings as quickly as possible. 

@Kai Van Leuven touched on the same point I would make: the pool of investors buying 1-4 unit investor properties is much larger than 5+ unit properties. This pushes cap rates down/prices up, and makes it harder to get a good return on your investment without getting creative.

Many small but wealthy investors find a niche between institutional investors and small investors in an effort to find better returning opportunities. But these days, even some institutional players are in the small 5-10 unit space. Manufactured housing communities/mobile home parks used to be an overlooked property type, but not so much anymore.

The low risk profile, easy financing, and other positives mentioned in this thread drive strong demand and low cap rates. Compound this with a flurry of 1031-exchanges and you have a frothy market where it's tough to get yield. 

My goal is to start with a 4 unit to get my feat wet get a FHA loan live in one and rehab it then when a lease is up in another unit offer them to move into the renovated one for more money or find a new place so I can rehab that one next.

Some where during this when my equity is right I'll try a conventional on another and repeat till i can flip my smaller units into a larger multifamily property. Easier said than done but it's my goal

Having owned 2-4 multi and I can assure you all, there is no more scale than with single family. I had a duplex that rented for around $600 a side, so $1200 total. At the same time I had houses renting for $1200. The duplex had twice the tenants, twice the furnaces, twice appliances, twice the vacancy and twice the headaches. 

So is this a good place to start? Yes that is how I started. Great experience and good cash flow, but not without work. Is it a good long term strategy? Some people do well in that niche. I know people who only own 2-4 unit properties and have 20-30. Others move up to large multifamily. Myself, I moved to single family homes. Some people have hundreds or even thousands of single family homes. 

Anyone who tries to tell you there is only one path to success is not open minded. Everyone has reasons for their chosen path in real estate. Every niche has its own advantages and disadvantages. 

I think you’re correct so I’m not going to bother trying to change your mind but it all depends on what you’re looking for....

It is almost as if there is no one "perfect investment" and the the ideal investment depends on the goals, knowledge, skills, and abilities of the individual investor...
@Zach Evanish how's that idea of managing SFRs like apartment buildings working out for Invitation Homes and American Homes 4 Rent?


@Bill F. I don’t speak in anyway for a gel but I appears to be going extremely well. They have both proven the model and the street is rewarding them. Even if they were not I don’t think that would make the argument less valid.