Would You Rather?

Question

Would you rather own 20 rental properties or invest in one 20 unit apartment? 🤔

Bill B. · Answer

To keep the values and the income even close to each other it would probably have to be a 20 unit building or 10 houses. Figure them apartments cost $2-3m, houses cost $2.5-$3.5m, the apartments bring in $20-25k in rent, the houses $25k-$30k.

In thsi scenario houses win:

You’d think you’d have 1/2 the turn over. But it will be closer to 10-20%. You have zero tenant on tenant conflict, nobody leaving because of shared wall problems

As mentioned, you can sell one instead of all. You can also do easier 1031 exchanges

Your buyer will most likely be an owner occupant not another investor looking for a deal

They are almost guaranteed to appreciate more.

Less chance of 100 vacancy/total disaster from one fire, earthquake, tornado, roof collapse (snow?), major water/mold issue.

You will likely have almost zero direct competition. (A 2bd/2b 1000sf apartment is closer comparison to any other one, what a particular house to another. )

Easier to get started one house at a time. Easier to wind down. Easier to leave to heirs.

I understand people might think it’s cooler to own a big building, or it’s the natural progression. But unless your goal is 1,000 units, take the houses.

Nathan Gesner · Answer

20 units in one location sounds like less work, but it will likely result in more work. Single-family homes have more stable, long-term renters. Apartments tend to have more transient, difficult tenants, particularly when it comes to issues with noise, parking, cleaning common areas, security, etc.

As Alessandro pointed out, individual units can be sold off one at a time, while the 20-plex would have to be sold all at once.

Alessandro Di Luciano · Answer

I'm also thinking as a more absentee owner, if we hire great PM teams I don't see the management of properties being that much more expensive. May save some fees on finding tenants by having a PM manage leasing vs an agent but as mentioned by Nathan the tenant profile would suggest that savings would be deteriorated by turnover.

Regarding multiple bills I feel they could be simple in either case, the right systems can really make the whole bills process a breeze. I'm not an expert on driving up prices with more supply held, but I feel picking the right markets would help mitigate this for the most part.

The more I think about it the more I talk myself into 20 separate properties. I imagine any insurance claims would also affect the premium of a 20unit much worse than a claim on one of the separate properties.

All this to say, I'm at a point where I'm looking to grow the portfolio, a good deal is a good deal! I'd be all over a 20 unit in the right situation.

a great thought provoking question indeed!

Alessandro Di Luciano · Answer

To give a quick not thought through response...All things being equal (from effort to cash flow) Give me 20 properties. This gives me the ability to sell a single property should I need to free up some cash, also the diversification of location gives some freedom to exit a declining market.

what about you?

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