How to transition from SFH to multifamily

Question

I currently have four SF houses.  One is becoming vacant next month and I am thinking about selling it.  I am actually thinking about selling all the houses as the leases end this year.  After paying taxes, recaptured depreciation, etc., I should have an excess of 100k.  With that I am thinking is maybe I should partner up and buy into a MF investment.  Then again there are so many good deals on SFH that perhaps now is not the time to jump into MF, especially since 100k is not exactly alot to play with anyway.  How did you get into multifamily and has it been worth it?  Are the returns really that much better in MF than SF?

Ryan M. · Answer

If your going to roll it then for goodness sakes don't pay all the taxes and 1031 it into something.

Ryan M. · Answer

The returns are higher renting homes but we aren't going to sell them to people where they fall back in our lap within a few years. The only way we sell is with a strong down payment (5k +) otherwise we rent for the interm. We have parks around here running 25% occupancy. We are carrying 25% total as rentals but still have a 100+ lots where it is resident owned.

Dale Osborn · Answer

You need to get buyers into the park owned homes and not renters. The homes will be torn up as they do not own the home and it will be the same as renting apts. You have to change out carpet, tile, repaint and repair everything in between tenants. If they own the home they will take better care of it. At the same time when you try to sell if there is a large percentage of park owned homes - lenders are not comfortable and you will have a hard time selling the property. There is a MHP in CO that has 130 spaces and they own 110 of them. Sales price has been jacked up to count the rental income so will never be able to sell this one unless the "bigger fool theory" comes into play.

Ryan M. · Answer

My family did the same thing but mobile home parks aren't what they used to be. We are now renting some and that's a whole other animal. 7 years ago we didn't own any of the homes.

Dale Osborn · Answer

When we got into apts, the SFR was selling for $65K and rent was around $500 to $550/month. The apts were selling for $20K per unit and rents were $400/month. Buying more units and getting about the same rents each sold us. The more units you can put under one roof - the better off you will be. After 10 years we did get burnt out on apts and moved on to mobile home parks.

Chris Masons · Answer

Hi Wade,

I am in NJ and while I have always invested in multis, with sf it is just alot tougher to cashflow + with 1 income. With a 4 family you have 4 incomes and still paying 1 tax one homeowners insurance policy. And yes taxes are very high here in NJ - all the more reason to invest in multis here, but say taxes on a SF are 6k on a 4 family they are not gonna be 24k they will be maybe 8k. So your income vs expense ratios are far more favorable with multis.

With that said prices on sf have really come down to where I am taking a 2nd and 3rd look - I currently own 5 multi investment properties so (FOR ME) adding a few SF may be a smart thing to do at this point to balance out my portfolio.

goodluck,
Chris

Will F. · Answer

Is loopnet the best place to look at Multi-Family?
Shaun do you recommend any books or other resources for apartments/ multifamily investing?

Account Closed · Answer

Wade,

I am in Houston as well and did SFH buy and hold rentals exclusively up until a few months ago. I wanted to branch out to multi-gamily/apartment buildings and started reading up on analyzing multi-family deals. Get familiar with the terms i.e. NOI, cap rate, value-add etc. Also, start looking at loopnet to see what kind of deals are out there and how much money you would need to get into the kind of multi-family you have in mind. It took me 6 months to find my first commercial (apartment building) deal but it was a homerun. You are right - you need to have financing lined up or else sellers are not going to take you seriously. Your best bet is to partner up with someone who can put cash into the deal as well.

Nick J. · Answer

One big advantage I've been able to utilize in transition into multi-fam myself has been owner carry.

At minimum, I look at 4plx's. I know what they should get in rents in certain areas and I know what the buildings should sell for.  A lot of time, sellers I've come across have tenants at much lower rents than they should have. I like those because I already see an upside in monthly rents right off the bat.

For me, its a transition of mindset of investing for 'equity' with SFR and more into 'income' with multi-fam. For me, its been worth it and I'll continue to do it at a reasonable and manageable pace.

How to transition from SFH to multifamily

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