Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
I am an investor myself that owns multiunits and have had them for years. In this market if I was gonna buy, it would be SFR's b/c of the cheap prices. So my question is simply this:
**Why would an investor pay $30-50K per unit to own an apt building when they can buy houses for $10K in rental mgt areas that will rent for the same price per month ($500-600) that the apts would?
Here is my thoughts:
Apts cost more to own, tax's and insurance are higher, people take better care of houses, tenants stay longer in houses, you can pay cash and get more houses and not have to get loans, pay interest etc, if you want to sell you have multiple exits with houses and more people can afford them so more buyers, and houses cost less to repair when you get an estimate b/c its not a big commercial building and you dont get gouged. I am sure there are more benifits, just going off the top of my head. What are your thoughts??
Residential Real Estate Broker · Grand Blanc, MI · Member since 2008 · 885 posts · 316 votes
15y
I have to agree with Jon.
My strategy for buying more income properties is opposite of what you've said, Jared. I find more headaches with SFHs.
I might pay a little more per door for an apartment building, but I'm leveraging the economies of scale. In the end I'm still cash flowing nicely and with fewer headaches.
Real Estate Investor · Walled Lake, MI · Member since 2010 · 121 posts · 66 votes
15y
Mark,
I think there's something to what Jared is saying. I don't agree that you can buy properties for $10K that are in good areas. You can find houses that cheap, but the plain and simple fact is nobody wants to live there, or the home will be in very poor condition and you will have to do quite a bit of work to get it rent ready. We're working with a lot of investors that have gotten lured in by price only to find they bought in the wrong location or the property was not in the condition they expected and their dreams of 25% returns disappear when they can't keep the place rented.
Now with that said, we're putting together properties in the range between $30k - $40k that are renting in the $750 - $900 range. The returns on these properties are going to be higher than your apartments because the rent is higher, and on the back end you're going to have a much easier time selling.
For us, the key is location. We're investing in Pontiac and Detroit, MI, but there are very specific areas of these cities that we are looking in. There's no doubt you can buy a house in Detroit for $100, but for the reasons I mentioned above you don't want that house. If you stick to the right locations that have solid neighborhoods, have well kept homes and you manage the properties right, there is a huge opportunity out there...
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
15y
Todd,
I do agree with what your saying. Some of the properties that are available for $10K are not in the most prominent areas but are still in great shape (rent ready) and make great rentals. I do see as well that if you invest in the types of locations you describe that the properties will rent a little higher. I try to stay away from the all boarded up streets but yet fall in between the higher areas as well. I think SFR's are a great investment as well.
Real Estate Investor · Walled Lake, MI · Member since 2010 · 121 posts · 66 votes
15y
Yeah Jared, one thing to watch out for is what is your exit strategy. I have an investor that I'm working with that is kind of stuck right now. He purchased the property for $10k about 2 years ago and since then he's pumped about $25k - $30k into the property. The property is rented, but he see's some of the properties we're putting together and he'd like to move his money. However his problem is that he can't sell the property for what he has into it. It's not the worst case scenario because the property is cash flowing, but I'm worred that the area is going to deteriorate further in the next few years and it's only going to become harder and harder to keep rented.
Remember that location is the one thing on a property you cannot fix...once you choose you're locked in!
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
15y
Todd, I couldnt agree more. Location is a major factor in any investment. Many of the people I know that do buy at the $10K price dont realIy worry about location b/c of price. I hope the guy you spoke of gets out of the property by the way. He might be able to owner finance it and let the buyer cash him out after a few years.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
15y
All good points, but consider a 20K house compared to the same apt. unit, twice the house? Location is key, there are no 10K houses in my area that the utility company will hook up. Too many variables to argue either way. Do you have specific properties in mind?
Real Estate Investor · Lake Charles, LA · Member since 2009 · 271 posts · 52 votes
15y
I tend to disagree a lil bit cause theres not many that i know of thats going to buy multis at 30 to 50k a unit,you tend to stay between 10 to 15. In my opinion its best to have an influx of sfhs and multi's.
Yes in the midwest rust belt states you can find these homes dirt cheap and some are money pits but on the other hand some are cash cows and u ge them at great prices but what im also finding is that if you're wholesaling them some are hard to get rid of.I say you really have to have a good team either way it go though.Never buy sight unseen thats for sure,I have a friend of mines that has a 6 unit that he paid 1k for in Dayton Ohio right now and unloading it for 6k so these deals are readily available,also take in mind these are alot of areas where arson in pretty rampant.But theres risks in every deal u make,no deal will be foul proof.Dont get scared of talk to other investors,Theres some investors making boat loads of money off of these same properties in the hood where the suit and tie guys wont even get down and look at.
For the same price you get these sfhs at you can get multis at the same price period.
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
15y
Financeexaminer, I do have specific areas and properties That I could point out but cant discuss specific properties in here that I am aware of,so I have been instructed. I do know of 10K houses that there's nothing wrong with them. I never heard the electic company wouldnt turn on electric unless a property was considered inhabitable, then I could see.
Stephen: I agree there is risk in every deal and in every area. I think alot has to do with your property manager when it comes to their screaning etc as well.
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
15y
ya, i was kidding...the point is, it's difficult to compare 30/50k/unit apt buildings to 10k houses, as they're most certainly different areas...not only that, but the buildings that are being bought at the higher end of that 30-50k spectrum will not cashflow
Real Estate Investor · Lake Charles, LA · Member since 2009 · 271 posts · 52 votes
15y
Bryan those 30 to 50k unit multi's would cashflow in maybe ny or la im thinking i maybe wrong but in those higher end cities like Palo Alto and other areas of the country they would make sense.So they would cashflow,I read an article not too long ago where Sam Zell bought a complex for over 200 mil
Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
15y
I dont know too many areas where multi unit buildings cost less than a SFR. In my area we are buying units at around 50k a door and a SFR goes for 100-150k.
I have mostly small buildings and am over 50 units now. It is a pain in the rear to run around all day fixing stuff. If you want to do this full time and want to do it for maximum profit I think the logical move it to go to big buildings. I have been looking at 40 units because it is just easier to do everything.
Altus, OK · Member since 2008 · 2k+ posts · 690 votes
15y
Originally posted by BryanA:
ya, i was kidding...the point is, it's difficult to compare 30/50k/unit apt buildings to 10k houses, as they're most certainly different areas...not only that, but the buildings that are being bought at the higher end of that 30-50k spectrum will not cashflow
This. If you're paying that much per door you're basically paying for a money pit big time.
Altus, OK · Member since 2008 · 2k+ posts · 690 votes
15y
Originally posted by Jeffrey K.:
I dont know too many areas where multi unit buildings cost less than a SFR. In my area we are buying units at around 50k a door and a SFR goes for 100-150k.
I have mostly small buildings and am over 50 units now. It is a pain in the rear to run around all day fixing stuff. If you want to do this full time and want to do it for maximum profit I think the logical move it to go to big buildings. I have been looking at 40 units because it is just easier to do everything.
Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
15y
I also deal with better tenants for the most part. I know I can make more money doing lower end stuff but I spend my whole life doing real estate and I should like what I do and feel safe where I work. That is worth giving up a few bucks a month. I hope to get those back in appreciation some day.
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
15y
your strategy works for you definitely...hope this doesn't border on hijacking the thread, if it does sorry...do you worry about someone undercutting your rental rates? i feel safe and insulated in my lower to median income areas bc my rents can't really go down much. i've always been afraid to step up to a higher dollar amount per unit in case those rents fall, and then you're stuck with an expensive property that isn't cashflowing....i'm paying around 10-12k/unit for around 375-450 rents...great cashflow, but when you think that a fourplex i had grossed just a little over one of your apartments each month, and i had to deal with a lot of crap there, you begin to wonder about other strategies...
Real Estate Investor · Lake Charles, LA · Member since 2009 · 271 posts · 52 votes
15y
ill step in and add on to what bryan and jeffery are saying as well,althought jeffery hasnt had too much problems with his tennants because of the price basically doesnt mean he wont,and im not sayign he will either but i do know it doesnt matter how much a tennant his paying eventually you'll have some of them that dont wont pay whether their paying 300 a month or 2000a month and im saying this from a landlord/friend of mines that has over 800 units all together.
Jeffery Obviously has prescreened his tennats pretty well,Bryan maybe you should get out of your comfort zone a lil bit