Small or mid size multifamily?

Question

Hi there! First time posting. BTW this community is awesome!!
I’m trying to figure out what strategy to take to achieve my goals. Hope someone can help shed some light!

so, what I want to do is to create passive income with cash flowing properties. I’m hoping to get to ~$4k/month passive income by the end of the year. (I’m starting from $0!)

Question I have is… what do you think about investing in smaller 2-4 unit multifamily vs 10-30 unit Multifamily deals?

In terms of locations, I like the Vegas, salt lake, Cleveland, Indianapolis, Phoenix, Minneapolis type markets.

What are the pros and cons? Any help appreciated. thank you.

Ryan Davies · Answer

Hotel to Apartment Conversion would help you accomplish your goal in 1 deal.

Doug Quist · Answer

I'd love to hear more details about the "unique lender / landlord laws" in Utah and AZ, please.Thanks in advance...Doug

Bill B. · Answer

Anywhere but Vegas for small multi. Literally a 50 year old 4plex in Mpls I lived in when I was 2 years old is nicer than almost anything in Vegas. If you choose Vegas go with SFR.

Ps. Has forum browsing been down for at least a day for anyone/everyone else? I’ve tried multiple browsers on my iPad. Reset the apps and the unit itself. All attempts at browsing of new or trending topics bring up a page failed to load error. So I can only go directly to mentions or keyword posts.

Sherry Patterson · Answer

That is sure a lofty goal! I have no idea of your budget but I would say you will need around 20 doors to meet this goal. That is having no idea of your down payment ability, ability for a loan, or experience. However, buying a larger multifamily is going to be a lot easier to get one loan instead of multiple small loans for smaller 2-4 units. Also, with going the smaller route you will have multiple closings which also costs more money than one. It is also easier to manage your doors if they are all in the same place instead of spread out where ever you can find a deal. It is also easier to negotiate one deal instead of several and maybe get an owner finance or subject too on a larger deal. If you don't have a lot of experience I would also consider not MF at all. Maybe something more suitable would be self storage or MH park where you do not even have to deal with tenants and toilets and get a higher ROI. If you are interested in Texas I am willing to help you in any way I can to accomplish your goals. Just let me know how I can be of service. Happy Investing!

AJ Exner · Answer

Hello Jindou,

That’s a great goal to have!

I would lean the 2-4 space because it would be significantly easier to scale up and acquire multiple properties in a year. The ability to even utilize a BRRRR strategy with 2-4 units while the larger MFR will make you find it and pay heftily for it.

As for the markets, I would lean Cleveland and Indy personally. Utah and AZ have some unique lender/landlord laws, so I would avoid those and Vegas is just tricky

I hope that helps!

Liam Naughton · Answer

Hi Jindou,

From a loan perspective, 2-4 units are a bit more favorable if you can take them down with an owner-occupied FHA, conventional, or VA loan. The rate will be about a point cheaper than any investment alternatives.

From a cashflow perspective, more units equals more money. It can also mean more cap ex. You now have to deal with 10-30 water heaters instead of 2-4.

From a deal perspective, you're more likely to hit your goal by starting out with the bigger unit counts. There are more opportunities for seller-financed deals in the larger unit counts because many of those owners/operators acquired the property that way themselves. If you can structure the terms in your favor while getting the price in the sellers favor you stand a good chance of getting to your goal.

Good luck and don't give up!