Knoxville, TN · Member since 2018 · 50 posts · 17 votes
As we all know it’s possible to obtain the 10 30yr fixed rate mortgages, which in my personal opinion is almost non negotiable and is my main focus.
So with that said, my plan is to get 10 quality B+ SFR properties in generally low cost of living areas. Recently I've been digging into the idea of potentially doing 10 small Multifamily (2-4) in order to maximize the number of doors after I reach 10 properties. Owning rentals seems to be an economy of scale and more doors means more tenants which means higher probability of stability in my overall portfolio (that's my though process anyway)
However, tenant quality and turnovers can be a cash flow killer and that’s where I’m stuck. This is more of a quality over quantity debate, 10 families in a nice area will most likely treat the property better and have a tendency of staying longer.
To put everything into context I’m doing the out of state turnkey thing. I am a median wage earner in Seattle and my main goal is cash flow and I can’t complain about tax benefits either. Currently own 1 OOS single family looking at my 2nd
I would be super careful with out-of-state properties with the exception of when you can get them for a steal and when you are fairly positive they will appreciate.
Otherwise, while some out-of-state properties look like they are cash-flowing well when all the counting is done after a few years the inefficient things will bury you e.g. the additional cost for property management, the inefficient management by management companies, the fact that management companies don't visit your property enough to know the tenant turned your property into an animal rescue center, etc.
As for whether SFR or multi-units are better, I find that multi-unit properties always have the best ROI. I live in Los Angeles and own several SFR properties in Las Vegas. When a tenant moves and this is myself doing the work with one or two workers, my cost to paint a SFR, replace carpets, repair plumbing, clean the yard, trim trees, haul trash to the dump, etc. is $6,000 to $8,000. I had to clean and get a property ready to sell in Idaho and my cost was $18,000. I had to paint the entire inside, outside, replace 3 broken bathroom sinks, reface the kitchen cabinets, trim trees, install a new stove and dishwasher and it took myself and one employee 13 day and we worked 12 hours every day.
As for multi-unit properties, they cost less per unit, often get the same or more for rent than SFR's, we don't have to trim trees and clean yards every time a tenant moves, we always have tile floors and never replace carpets, we are always finished withing 3 days and our average cost to make an apartment look like it was just built is less than $3,000 and usually no more than $2,000.
Believe me when I say it is like walking into a nightmare when we first walk into a 3 to 5 bedroom SFR just after a tenant moves out. Some of the properties we own have 20-ft high ceilings. The cost to replace the carpets in one SFR we did a few weeks ago was $4800 and I buy medium grade carpets.
One more thing I don't like about SFR is it takes a serious amount of time to visit every property scattered all over the place and you can visit more units at the same time with multi-unit properties. This time-saving is serious to know which tenants just moved in two large dobermans, or which tenants moved in 5 friends with vehicles pouring gallons of motor oil in your driveway.
I spend most of my life crunching numbers to get the highest ROI. Generally (not always), the only time a SFR will beat a multi-unit is if the SFR appreciates, significantly, or if you purchased the property for a low price and the rent is high.
We have a lot of SFR properties because we purchase them for 30 cents on the dollar at auctions in 2008. They more than doubled in price in the past 12 years. Starting a few months ago, I crunched the numbers and the cost to clean them has been so high I sent every tenant a notice telling them that I am selling the properties. So far, 5 tenants moved out and I cleaned the houses and sold all 5 of them. I am waiting for the rest of the tenants to move and I am selling every out-of-state SFR.
The prices for SFR and multi-unit properties in California are super high, but for the money I get from every property I sell in Las Vegas I can purchase a single unit in a multi-unit property for about $250k to $300k and I can actually get more rent for a 2-bedroom apartment than I was getting for a 5-bedroom house in Las Vegas. Believe-it-or-not, my beautiful 5-bedroom house in Las Vegas has a maximum rent of $1,350 and sale price of the house was $280k. A 2-bedroom apartment in Los Angeles costs about $250k to $300k and rents for $1,900 to $2,100. So, even though California has some of the highest prices in the country, California still has the most-profitable investments.
Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
6y
@Tyler Smith there is no right or wrong answer to this, every positive can also be framed as a negative. I personally want to deal with as few tenants as possible and prefer nice single family homes where the long term amortization/appreciation is the primary wealth builder. But there are many very wealthy people who own cheap multifamily with the sole focus being cash flow (and of course those two are not mutually exclusive).
So the best way to decide is to look at your goals/skill set and figure out what makes sense for you. What is your primary reason for wanting to own real estate?
I would be super careful with out-of-state properties with the exception of when you can get them for a steal and when you are fairly positive they will appreciate.
Otherwise, while some out-of-state properties look like they are cash-flowing well when all the counting is done after a few years the inefficient things will bury you e.g. the additional cost for property management, the inefficient management by management companies, the fact that management companies don't visit your property enough to know the tenant turned your property into an animal rescue center, etc.
As for whether SFR or multi-units are better, I find that multi-unit properties always have the best ROI. I live in Los Angeles and own several SFR properties in Las Vegas. When a tenant moves and this is myself doing the work with one or two workers, my cost to paint a SFR, replace carpets, repair plumbing, clean the yard, trim trees, haul trash to the dump, etc. is $6,000 to $8,000. I had to clean and get a property ready to sell in Idaho and my cost was $18,000. I had to paint the entire inside, outside, replace 3 broken bathroom sinks, reface the kitchen cabinets, trim trees, install a new stove and dishwasher and it took myself and one employee 13 day and we worked 12 hours every day.
As for multi-unit properties, they cost less per unit, often get the same or more for rent than SFR's, we don't have to trim trees and clean yards every time a tenant moves, we always have tile floors and never replace carpets, we are always finished withing 3 days and our average cost to make an apartment look like it was just built is less than $3,000 and usually no more than $2,000.
Believe me when I say it is like walking into a nightmare when we first walk into a 3 to 5 bedroom SFR just after a tenant moves out. Some of the properties we own have 20-ft high ceilings. The cost to replace the carpets in one SFR we did a few weeks ago was $4800 and I buy medium grade carpets.
One more thing I don't like about SFR is it takes a serious amount of time to visit every property scattered all over the place and you can visit more units at the same time with multi-unit properties. This time-saving is serious to know which tenants just moved in two large dobermans, or which tenants moved in 5 friends with vehicles pouring gallons of motor oil in your driveway.
I spend most of my life crunching numbers to get the highest ROI. Generally (not always), the only time a SFR will beat a multi-unit is if the SFR appreciates, significantly, or if you purchased the property for a low price and the rent is high.
We have a lot of SFR properties because we purchase them for 30 cents on the dollar at auctions in 2008. They more than doubled in price in the past 12 years. Starting a few months ago, I crunched the numbers and the cost to clean them has been so high I sent every tenant a notice telling them that I am selling the properties. So far, 5 tenants moved out and I cleaned the houses and sold all 5 of them. I am waiting for the rest of the tenants to move and I am selling every out-of-state SFR.
The prices for SFR and multi-unit properties in California are super high, but for the money I get from every property I sell in Las Vegas I can purchase a single unit in a multi-unit property for about $250k to $300k and I can actually get more rent for a 2-bedroom apartment than I was getting for a 5-bedroom house in Las Vegas. Believe-it-or-not, my beautiful 5-bedroom house in Las Vegas has a maximum rent of $1,350 and sale price of the house was $280k. A 2-bedroom apartment in Los Angeles costs about $250k to $300k and rents for $1,900 to $2,100. So, even though California has some of the highest prices in the country, California still has the most-profitable investments.
As we all know it’s possible to obtain the 10 30yr fixed rate mortgages, which in my personal opinion is almost non negotiable and is my main focus.
So with that said, my plan is to get 10 quality B+ SFR properties in generally low cost of living areas. Recently I've been digging into the idea of potentially doing 10 small Multifamily (2-4) in order to maximize the number of doors after I reach 10 properties. Owning rentals seems to be an economy of scale and more doors means more tenants which means higher probability of stability in my overall portfolio (that's my though process anyway)
However, tenant quality and turnovers can be a cash flow killer and that’s where I’m stuck. This is more of a quality over quantity debate, 10 families in a nice area will most likely treat the property better and have a tendency of staying longer.
To put everything into context I’m doing the out of state turnkey thing. I am a median wage earner in Seattle and my main goal is cash flow and I can’t complain about tax benefits either. Currently own 1 OOS single family looking at my 2nd
It probably just depends on so many factors. Many tenants treat MF like an apartment so that may mean you could see a lot of costly move-outs. It also depends on the water meter situation. Some MFs only have one meter and you may be paying all of the overages. Also, as the owner you need to pay for the grass cutting and the snow removal. You don't need to deal with that with SFRs.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
6y
Jack I don’t know where you found such a bad neighborhood in Vegas but I guess it’s good you got rid of it. Was it on fire the entire time? $1350 rent and $280k sales price for a 5 bedroom house in Vegas is insane low? I get $1400-$1800 rent and could easily sell my my 3 & 4 bedrooms for more than than. Heck I just sold my 3 bedroom primary in a basic b - c neighborhood (Craig and Decatur) for $415k.
At least you don’t have to deal with CA landlord laws where you can’t evict anyone, you have to pay to help them move, there’s always a threat of rent caps, the higher property tax, they take some of your profits in state income tax, and if you do a 1031 exchange they tax that as well.
Knoxville, TN · Member since 2018 · 50 posts · 17 votes
6y
@Daniel Haberkost My main goal is cashflow. Basically I would like to phase out my job over the next decade or so. Being a blue collar worker and saving up for each property with my w-2 job makes some of the larger $500k+ out of reach at least in the short term while the $100-$120k SFR is very doable. I understand there are strategies to have infinite returns and all, while I'm starting out getting the hang of it I'm not sure if leveraging up and/or taking on big projects from a few states away is the best choice. Just my own thoughts, thanks for the response!
Knoxville, TN · Member since 2018 · 50 posts · 17 votes
6y
@Account Closed I understand that out of state can be challenging, I'm not too familiar with the LA market but I assume its very similar to Seattle. 2 years ago I drove by a house that had burnt down in Ballard (a desirable neighborhood in north Seattle) and it was selling for $400k. I'm sure some people who are way better at the real estate game can make these higher markets work, I just don't physically have the experience or capital to take on the houses in Seattle. I'm saying never but right now I'm thinking I should stay away from the land of $600k houses
Knoxville, TN · Member since 2018 · 50 posts · 17 votes
6y
@Tom Ott I know its easier said than done but have no problem with paying a property manager who does a quality job, so yes one of my biggest concerns are constant turnovers due to the cost. I know in my own life I've been a renter in multifamily units for the last 6 years or so and I've never stayed past my initial lease. I can only assume a good portion of tenants are similar to me
@Daniel Haberkost My main goal is cashflow. Basically I would like to phase out my job over the next decade or so. Being a blue collar worker and saving up for each property with my w-2 job makes some of the larger $500k+ out of reach at least in the short term while the $100-$120k SFR is very doable. I understand there are strategies to have infinite returns and all, while I'm starting out getting the hang of it I'm not sure if leveraging up and/or taking on big projects from a few states away is the best choice. Just my own thoughts, thanks for the response!
Makes sense, it's definitely easier to get cash flow in the cheaper markets. Are there any cash flow markets where you have contacts that you already know/trust? Going that route you will be very dependent on the people you have on the ground helping you find deals and managing them. I'm from OH originally and many out of state investors buy in Cincinnati/Columbus/Cleveland/Toledo because the numbers look great on paper but they don't realize they're buying in a war zone......
Point being, make sure you invest the time up front to interview and hire the right people whose interests are aligned with yours!
Knoxville, TN · Member since 2018 · 50 posts · 17 votes
6y
@Daniel Haberkost The first property I purchased was in Jackson, MS, not quite sure yet how I feel about the management company at this point, I'll know in the near future. I've definitely been interested in the Little Rock and Memphis markets. I've been in contact with a provider down there who has really good reviews and a solid track record. Due diligence is key for sure and nobody is successful without making mistakes. Thanks for your input!
Tyler, TX · Member since 2020 · 25 posts · 7 votes
6y
@Tyler Smith
More turnover for sure in MF then SF and more income but twice the maintenance and repairs. I say once you figure the area you invest in let the market dictate what you buy if SFH rent better buy SF if MF is better go there. You can always sell a unit and go the market that works for you
Rental Property Investor · Kansas City, KS · Member since 2015 · 45 posts · 29 votes
6y
Your premise of "more doors means more stability" is wrong my friend. 10 nice SFRs will be waaaayyyy more stable/less risky than 10 4-plexes/triplexes. As you get to these mini multi-families the tenant churn ramps up significantly. I've had some luck with long terms tenants at a duplex I own, but eventually my long term tenants fought with the other side of the duplex over their cats and then left.
Anyways - SFR all the way. Honestly not sure why this remains a debate tbh. It's easier, more stable, fewer headaches, and more liquid. I've owned/own both.
Knoxville, TN · Member since 2018 · 50 posts · 17 votes
6y
@Johnny Wolff Are you focusing on higher end homes? By higher end I mean median home value of the market up to slightly higher than median value. I feel like the bad rap that out of state investing gets is from investors that don't do their due diligence and purchase properties way below median price and expect nothing to go wrong. Just my person opinion
Knoxville, TN · Member since 2018 · 50 posts · 17 votes
6y
@Brian G. the main reason is I live in Seattle where home prices are just ridiculous. I actually work construction so a rehab wouldn't be a huge deal I don't think compared to other people without construction knowledge. But my main goal is to increase my income level and eventually phase out of my current job, I know high cost of living areas can definitely be profitable if you know what you're doing but frankly I don't. In my own head this is the most reasonable path for me to begin my real estate journey
Rental Property Investor · Kansas City, KS · Member since 2015 · 45 posts · 29 votes
6y
@Tyler Smith - I typically purchase slightly below the median or at median price and focus on nicer areas with reasonable (6-8%) cash returns. Can't figure out why folks chase high yield in RE...that extra $75/mo in cashflow isn't going to change their life in any material way. But constant churn from the tenants in the high yield areas will definitely disrupt your life (and so will a $6K make-ready).
@Lee Ripma and I were discussing this exact thing the other day. RE's "fountain of youth" of 10-12% cash on cash returns work for @Brandon Turner, but he's a pro with a global network at this point in his investing career with a lot of advantages that most of us don't have. Give me singles and doubles all day every day. Home Run swings typically lead to strikeouts in all asset classes - RE is no different. Invest well, for the long term, you'll do well.
@Brian G. the main reason is I live in Seattle where home prices are just ridiculous. I actually work construction so a rehab wouldn't be a huge deal I don't think compared to other people without construction knowledge. But my main goal is to increase my income level and eventually phase out of my current job, I know high cost of living areas can definitely be profitable if you know what you're doing but frankly I don't. In my own head this is the most reasonable path for me to begin my real estate journey
Have you researched the House Hacking concept? Honestly, that's a much better place to start imo especially with your knowledge and skills!
Knoxville, TN · Member since 2018 · 50 posts · 17 votes
6y
@Johnny Wolff well I'm glad to hear other people have similar thought processes to me. 8% CoC with some tax benefits and a 30 year loan pay down seems like a good deal to me
Knoxville, TN · Member since 2018 · 50 posts · 17 votes
6y
@Brian G. Yes, actually house hacking was the first strategy I tried to implement. It is absolutely the first thing I’m going to try and do if housing prices drop in the Seattle area.
Generally speaking if I were to purchase a decent duplex with 5% down in a decent suburb I would still barely break even if not have negative cash flow if I were to move out and rent out the 2nd unit. This is the house hack catalyst for me, my current monthly expenses would increase and my exit strategies would be limited unless there was rent increases or appreciation of the property.
Again I am not saying it cannot be done, I’m sure there are real estate pros killing it in the Seattle market I just don’t see a plausible way for me personally to be able to be successful in this market right now
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
6y
@Tyler Smith presumably you’ve modeled out all possible options to house hack (ie sfh, duplex, tri, quad, etc)? Also, have you considered the possibility of purchasing a small multi to house hack and turning one/more of the units into a Vacation Rental? STRs generally can command 2-4x the gross monthly revenue of a LTR. VRs are a very active biz but it’s worth thinking creatively if it allows you to invest locally.
Sorry, but anyone recommending SFR's over multi-unit properties doesn't have a clue and most-likely never owned multi-unit properties. I started my real estate investing career in 1968 while working for some of the richest multi-unit investors in the country. You won't see Donald Trump looking for SFR's on Zillow.
I own both SFR's and multi-unit properties in several states and the tenant turnover is the same for SFR's as multi-unit properties. The SFR's cost far more to maintain. You can visit 100 tenants in a multi-unit property in one trip, or waste your life making 100 appointments and 100 trips to meet with 100 SFR tenants. Lots of luck beating that one. That is why I am selling my Las Vegas SFR's. From the south end where I own SFR's to the North end where I own some the distance is about 30 miles, plus my 300 mile trip from Los Angeles to Las Vegas. I cannot visit all my SFR's in Vegas in a single day, but I can visit one 40-unit property and be out of the property in less than 2 hours.
You can have a manager manage 100 units all within 1 minute of his doorstep, or have him drive hundreds of miles and spend several weeks trying to meet up with 100 SFR tenants.
Multi-unit properties cost less to purchase, less to maintain and take less time to manage.
No 100 SFR's will every match or beat multi-unit properties because when you increase the rent on a SFR the value of the property is the same. When you increase the rent on multi-unit properties the value of the property increase 10 to 18 times the rent increase due to the Gross Multiplier.
I
f you have a 100 unit building with a GRM of 13 (very average) and you increase all the rents by $100 you just made a profit of 100 units x $100 per month x 12 months X GRM 13 = $$1,560,000 INSTANT increase in property value.
First year profit = $1,560,000 + $300 / month cash flow x 100 units x 12 months = $360,000 = $1,920,000.
If you increase the rents a tiny $50 every year your profit for the one building is $40,320,000
You cannot even do that with SFR's because they don't increase in value when the rent is increased.
profit just by + you earn an extra cash flow every year = $120,000. So for the first year by increasing the rents $100 you made a profit of $250,000 + you make the $120,000 increase in rental income every year afterward and by the end of the 10th year you made $1,330,000 assuming you never increased the rents again for 10 years, but if you increase the rents only $50 every year, at the end of the 10th year you will make a total profit of
Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes
6y
Originally posted by @Account Closed:
Sorry, but anyone recommending SFR's over multi-unit properties doesn't have a clue and most-likely never owned multi-unit properties. I started my real estate investing career in 1968 while working for some of the richest multi-unit investors in the country. You won't see Donald Trump looking for SFR's on Zillow.
I own both SFR's and multi-unit properties in several states and the tenant turnover is the same for SFR's as multi-unit properties. The SFR's cost far more to maintain. You can visit 100 tenants in a multi-unit property in one trip, or waste your life making 100 appointments and 100 trips to meet with 100 SFR tenants. Lots of luck beating that one. That is why I am selling my Las Vegas SFR's. From the south end where I own SFR's to the North end where I own some the distance is about 30 miles, plus my 300 mile trip from Los Angeles to Las Vegas. I cannot visit all my SFR's in Vegas in a single day, but I can visit one 40-unit property and be out of the property in less than 2 hours.
You can have a manager manage 100 units all within 1 minute of his doorstep, or have him drive hundreds of miles and spend several weeks trying to meet up with 100 SFR tenants.
Multi-unit properties cost less to purchase, less to maintain and take less time to manage.
No 100 SFR's will every match or beat multi-unit properties because when you increase the rent on a SFR the value of the property is the same. When you increase the rent on multi-unit properties the value of the property increase 10 to 18 times the rent increase due to the Gross Multiplier.
I
f you have a 100 unit building with a GRM of 13 (very average) and you increase all the rents by $100 you just made a profit of 100 units x $100 per month x 12 months X GRM 13 = $$1,560,000 INSTANT increase in property value.
First year profit = $1,560,000 + $300 / month cash flow x 100 units x 12 months = $360,000 = $1,920,000.
If you increase the rents a tiny $50 every year your profit for the one building is $40,320,000
You cannot even do that with SFR's because they don't increase in value when the rent is increased.
profit just by + you earn an extra cash flow every year = $120,000. So for the first year by increasing the rents $100 you made a profit of $250,000 + you make the $120,000 increase in rental income every year afterward and by the end of the 10th year you made $1,330,000 assuming you never increased the rents again for 10 years, but if you increase the rents only $50 every year, at the end of the 10th year you will make a total profit of
