Best bang for your buck?

Question

I have about $250-$300k to use as a down-payment that I'll be 1031ing out of a property into the new one. My question is, what market and with what product will my money go the furthest? MF building? Mobile home park? Several smaller multi-family properties? I'm familiar with Gulf Coast FL markets, NC and Cape Cod/New England. I'm looking to acquire as many units as possible for about $1M-$1.2M loan. Where would you put your money and why?

Jeffrey Donis · Answer

I agree with with @Tony Clark. I've heard mobile home parks have the lowest long term appreciation value, and it can be hard to sell if there isn't any demand for it in your area. As others have mentioned, it can be harder to find financing for a MHP. Nearby communities might not be happy with a MHP in the area and you might be re-zoned as well (depending on location). And mobile homes have no solid foundation usually, so they are more susceptible to damage in the event of a natural disaster. I vote you go with a small multifamily property, perhaps in a market @Stephanie P. suggested. Best of luck!

Brandon Goldsmith · Answer

There is a happy medium to that. You might want to look at a few markets that fit your goals within REI and start having conversations with a few locals about it. Getting the most units in always everyone's goals but it also depends on the condition and location of the property so that is why it is good to have some boots on the ground when building your core 4. @Dave Kansagor

Tony Clark · Answer

@Dave Kansagor I agree with @Stephanie P., if you're looking for best bang for your buck you're essentially looking for the highest cash on cash return. This means that the more willing a lender would be to give you a larger loan relative to purchase price, typically the higher your cash on cash returns will be. I see two scenarios where this works well (not limited to two, but this is just in my experience)

1. 1-4 unit property portfolio: Many lenders are very used to single family/small multifamily rental properties and will lend 75-80% LTV on a 30 year term. This means that if you went the single family route, you could get a larger total "loan" by percentage on a longer term than many commercial loans - this would increase your cashflow because your monthly loan payments will be lower. One of my clients is a large investment fund that does exactly this strategy in a few cities across the US. The downside is that appraised value for residential properties will likely be lower than market value right now because of demand pushing up property prices, so it will be tougher to find that many 1-4 unit properties that will be reasonably priced for what you're looking to do.

2. Medium-Large Multifamily (12+ Units): Commercial lenders will like large multifamily properties and will typically base loan values off of DSCR and cap rate, and will look less at your financials and more at the property. This means that you will be able to find many lenders willing to lend on larger properties. However, the downside here is that the terms typically aren't as good, with shorter amortization periods and tougher loan terms.

Either way you go, you can find great deals and find a 10%+ cash on cash return. I'm biased (TN licensed agent) but I see those numbers frequently in West TN, so I'd recommend looking anywhere you can find a stable tenant base, growth, and strong cashflow numbers.

Brandon Sturgill · Answer

Sounds good @Dave Kansagor if you land in the Columbus market keep me posted....always glad to help

Shiloh Lundahl · Answer

@Dave Kansagor I would put it into mobile home parks in your area. My buddy keeps encouraging us to go into Florida to buy some parks there.

Ryan Mainwaring · Answer

@Dave Kansagor I second Columbus Ohio.  What type of property are interested in a Columbus Market?

Brandon Sturgill · Answer

@Dave Kansagor What is your 1031 timeframe...it's a balancing act to be able to get you into the right off-market opportunity and meet the requirements of the exchange....not impossible, but it will take some careful coordination.

The difficulty with the exchange is that once you commit, your direction is set and you need to have multiple options. I would suggest linking up with a broker/agent that is versed in 1031 to help you avoid possible pitfalls.

Here are some resources for markets most folks are checking out for their next investment

Best of luck going forward

Remington Lyman · Answer

North Linden, South of Main, Vassor Village, Woodland Park, MT Vernon, Milo-Grogan, Franklinton, Merrion Village, Hungarian Village, Southern Orchards, Driving Park, Olde Towne East, Franklin Park, King Lincoln, Old Oaks, Livingston Park are all but not limited to some areas in Columbus, Ohio I think will gentrify quickly and make for great long term buy and holds.

Remington Lyman · Answer

I would put my money into Columbus, Ohio. Our job and population growth is going to push our cap rates down lower over time so I am trying to get in now.

Anthony McEvoy · Answer

@Dave Kansagor in addition to what everyone else has stated... I personally wouldn't focus on "the most units" as much as the best ROI for the dollar amount.  I hear it often and people often assume more units means better investment.  I would rather 50 all star tenants with a great return than 100 units of headaches with little return.

Best bang for your buck?

Most Popular Reply