Better to Buy Many Properties or Ever Larger Properties?

Question

So here on BiggerPockets, we see a lot of investors who have bought tons of properties. It seems like the guy with the most deals under his belt is the most relevant to any discussion. It also seems like a lot of investors come to BiggerPockets with the goal of buying "one property this year, and having 20 in ten years" or some similar goal.

This goal - of owning many many properties, used to be mine. Lately, however, I've been seriously questioning this logic. I can't decide whether I'd rather own ever larger and more scalable properties, or whether I'd like to own a large number of SFRs and Small Multifamilies.

I see a couple of pros and cons to both approaches:

For the investors looking to buy lots of smaller properties, he is able to get to know a specific niche very very well, and hone in on a process that he can repeat over and over again. In short, he (or she!) will become an expert in this area, and can continue to reap excellent rewards over the long-term.

On the other hand, this investor will have dozens, or maybe even hundreds of scattered properties to manage. That could be a pain and will require a complex management system.

For the investor looking to continually scale up and buy larger and larger commercial properties, he gets to take advantage of scale with each purchase, and the economics of having a larger investment in one, easier to manage location.

The big commercial investor, however, might see disadvantage in that if he continues to scale, each purchase is of a larger and new type. He will have to continually adapt and grow, perhaps more so than the investor purchasing the same units over and over again.

I realize that I'm still a fledgling investor here, so I'd like to hear from both sides of the coin. What are some additional pros and cons of these two differing approaches to buy and hold real estate investing?

Roy N. · Answer

@Scott Trench

Our objective has been to hit our target of units (doors if you prefer) with the minimum number of actual properties.

Naturally, for many of the reasons you referenced, we have collected a few smaller properties along the way - some in the beginning when we did not have the knowledge & resources to hunt bigger game, some opportunistic (longer term plans for the land) - but our primary target these days is 20 - 50 units (which are rare(ish) in these parts). I would welcome the opportunity to pursue a 100+ unit complex, but there are only a handful in the area and we are not in that league (yet).

Roy N. · Answer

If you are going about things adroitly, it is one and the same.

Peter Tverdov · Answer

I personally don't get caught up in the rat race on here of people who brag about the amount of homes or doors they own. What I care about is ROI and in my case, cash flow. I wouldn't want 10 properties valued at 50k each that combine to cash flow 10% a month. I rather have one property valued at 500k that cash flows 10% a month.

That being said, smaller and cheaper homes will always need owners and to those who like to specialize in that niche, good for them.

Find your niche. For some it's SFH, for others its MFH, some like Class A neighborhoods, some like Class C. Some like mobile homes, some like student housing, some like commercial property.

Be concerned with how fast your money is growing, not how many "doors" you own.

Ronald Perich · Answer

Goals change over time, and mine may do so in the future. But for now, I want to be where others are not. I like the idea of a homestead even though the property has more than one door.

For example, I passed on a six-unit because it felt too industrialized. And because the numbers weren't great. But they'd have to be better in that type of property because turnover is high and quality of residents is lower.

I'm not overly concerned about too many small properties. I have systems that let me manage them as if they were large complexes. But I know I get more CapEx buying power with a fourplex vs. a single family.

Example... My nine unit costs for HVAC cleaning are less just because I have so many to do at once. And I can get my handyman over there with a list of things to do and only get one service charge. If I had nine SFH, I would have to pay multiple service charges.

Tyler Merrell · Answer

I am looking at similar things. I am in a unique position to turn 15+ acres into a rental Subdivision, not apartments but many SFH and a few duplexes. Yes, they are multiply buildings, but they are strategically and closely located so that I can manage easier. My issue is knowing wether I should do more SFH or duplex style. I live in a rural community, so really feel that SFH will do better, but the Return is better on duplex due to cost of building.

Whats your thoughts.

Scott Trench · Answer

@Ronald Perich That's a very interesting approach. Do you think that you will continue to accumulate a large number of properties that you will have to systematize management for? While larger and slightly less volume than a large number of SFRs or small multis, you will still run into the problem of having too many individual properties, no? (That's a good problem though!)

@Roy N. Thanks for this - I like that approach a lot. I think that your problem is pretty interesting though in that your market simplyy offers so little opportunity to scale!

Ronald Perich · Answer

For me, the sweet spot is more than a single family and less than 50 units. Why?

• It can be a challenge to get financing for these properties. Seems like a negative, but it's not. Harder means less people will go for it.
• It's too small for most of the big players. They want massive scale.
• Smaller complexes tend to have a more house-like and less industrial feel to them. I am a suburban kid and like green space. I've passed on investments that felt too industrial.

SFH is not bad, mind you. But the competition to buy is huge (you're going against not just investors but owner-occupied as well), you have more vacancy risk, etc. If I am going to spend time putting together an opportunity, I want to maximize the use of that time.

Better to Buy Many Properties or Ever Larger Properties?

Better to Buy Many Properties or Ever Larger Properties?

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