One BIG property or two smaller properties

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One BIG property or two smaller properties

Member since 2022 · 43 posts · 25 votes

Running into a wall here and would love your thoughts and insights as I try to scale as a new investor. We have a chunk of cash to work with which I had originally planned to buy three STR properties with (traditional mortgage, 20% down) BUT I found a larger property with a larger price tag that looks to cash flow very well if done right. So my question is...do I spend 2/3 of my cash on this one property or stick to my original plan and look for three properties with a more moderate cash flow? Thanks everyone!

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John UnderwoodPro Member

Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes

Quote from @Account Closed:

Quote from @John Underwood:

One bigger property can make more with less effort than 2 properties.

Just curious, is there a healthy demand for the bigger properties?

I have a 6 bedroom, 4400 sq ft mountain cabin that can sleep up to 23 people.

Wow I can't believe how full it stays. One group checks out another arrives in the afternoon.

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4y
Quote from @Marcelle Abel:

Running into a wall here and would love your thoughts and insights as I try to scale as a new investor. We have a chunk of cash to work with which I had originally planned to buy three STR properties with (traditional mortgage, 20% down) BUT I found a larger property with a larger price tag that looks to cash flow very well if done right. So my question is...do I spend 2/3 of my cash on this one property or stick to my original plan and look for three properties with a more moderate cash flow? Thanks everyone!

Your title says one big or two smaller, but the writeup says 3 smaller. In general you should buy whatever makes the most financial sense, and one property is less work than 3 if the cash flow is all the same. But there might be multiple opportunities for value increase, and you also get a little diversification with 3 instead of 1.
I would probably go for 3 smaller but that's a preference issue if the cash is all the same.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
I like the feel of more smaller properties. I can't even say exactly why without seeing all these places. I think you get more appreciation that way...although, I know, the math is the same.
You have more coverage, ie, if a roof needs replacing on one house, they can all pay for it....if you lose a tenant in one house, you have the other houses to back you up....
Just my .02
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
4y
Hey @Marcelle Abel, a few more details would be helpful. I would say that one place gives you fewer problems, 3 properties gives you more.
3 places gives you more opportunities while one gives you...well...one.
More deeeets! :)
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
4y
One bigger property can make more with less effort than 2 properties.
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Johnny LynumPro Member
Investor · Leesburg, VA · Member since 2018 · 233 posts · 92 votes
4y
@Marcelle Abel i have a couple questions to help drive you to your answer.
What's your ultimate real estate goal?
Do you have a certain amount of passive income you're looking to generate?
Is one investment more passive than the other?
What is the cash on cash return for each deal?
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Marcelle Abel
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Member since 2022 · 43 posts · 25 votes
4y
Quote from @JD Martin:

Quote from @Marcelle Abel:

Running into a wall here and would love your thoughts and insights as I try to scale as a new investor. We have a chunk of cash to work with which I had originally planned to buy three STR properties with (traditional mortgage, 20% down) BUT I found a larger property with a larger price tag that looks to cash flow very well if done right. So my question is...do I spend 2/3 of my cash on this one property or stick to my original plan and look for three properties with a more moderate cash flow? Thanks everyone!

Your title says one big or two smaller, but the writeup says 3 smaller. In general you should buy whatever makes the most financial sense, and one property is less work than 3 if the cash flow is all the same. But there might be multiple opportunities for value increase, and you also get a little diversification with 3 instead of 1.
I would probably go for 3 smaller but that's a preference issue if the cash is all the same.

Oh dang! I meant three! Thank you for your insights!
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Marcelle Abel
OP
Member since 2022 · 43 posts · 25 votes
4y
Quote from @Johnny Lynum:

@Marcelle Abel i have a couple questions to help drive you to your answer.
What's your ultimate real estate goal?
Do you have a certain amount of passive income you're looking to generate?
Is one investment more passive than the other?
What is the cash on cash return for each deal?
My goal is to have 4-5 STR properties (that bring in $10K/month combined) at least and possibly more but that is what my goal is in the next 12-24 months (one down.) We have the cash to make this happen so its now about identifying the right deals. The one STR we have now is very passive as we have a PM taking care of it 100%. The cash on cash for the one big property is 20% and I have not yet identified the others, more just trying to strategize at this point. Thanks!
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Marcelle Abel
OP
Member since 2022 · 43 posts · 25 votes
4y
Quote from @John Underwood:

One bigger property can make more with less effort than 2 properties.

That's where my head was but then I started to second guess myself as I wondered if building equity on three medium properties might be better than one big one and one smaller one for long term wealth?
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Marcelle Abel
OP
Member since 2022 · 43 posts · 25 votes
4y
Quote from @Bruce Woodruff:

I like the feel of more smaller properties. I can't even say exactly why without seeing all these places. I think you get more appreciation that way...although, I know, the math is the same.
You have more coverage, ie, if a roof needs replacing on one house, they can all pay for it....if you lose a tenant in one house, you have the other houses to back you up....
Just my .02

Yep, totally understand that logic!! Thank you!
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Leslie Anne Morris
Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes
4y
I would consult with an investor agent in that market and get their opinion. Preferably one your are working with on the deal or deals. I prefer smaller STR targeting 4-8 sleepers primarily. But this is my strategy, I know others who go very big with their units.
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Quinn OlivarezBusiness Member
Real Estate Agent · Houston, TX · Member since 2021 · 115 posts · 131 votes
4y
go for smaller, less and less milennials are having children and the zoomers are no different.
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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @John Underwood:

One bigger property can make more with less effort than 2 properties.
Just curious, is there a healthy demand for the bigger properties?
0 Reply
Ken Boone
Investor · Greenville, SC · Member since 2015 · 1k+ posts · 1k+ votes
4y
Yea totally depends on the market. So in my market, bigger is like the 5-6 bedroom cabins and smaller is like the 2 - 3 bedroom cabins. Yea definitely pros and cons like everyone has mentioned. On one hand you can say it's less work to have 1 cabin rather than 3, which can be true for many scenarios, 3 cabins will hopefully mean 3 times the bookings, 3 times the guests to deal with etc.. But this can be overcome with automation. However, the flip side, is that the 5-6 bed cabins are large group party cabins more often than not. Damages are much more harsh and more expensive to deal with and happen much more frequently at the larger cabins, at least in my circle. Bigger problems mean bigger headaches. Not that you don't have problems from time to time with smaller cabins, but you definitely have more headaches from a party group in a larger cabin. I have talked to several owners of larger cabins that feel it is worth the extra maintenance for the bigger cabins though. Kind of gets back to what you want to deal with. Having said that, if you are going to have someone else manage it, then yea I would consider the bigger cabin, because you won't be the one with the headaches, but you will have the cash flow.
My strategy has been the smaller cabins. I do very well in that space and you know if I want to slow down I can sell one of them if I want to at any point and still have others for the cash flow. If you have 1 big one, not so easy to just sell off a part if you want. It gets back to diversification.
The smaller cabins saw much more appreciation in my area than the larger cabins also. Just something else to be considered. Granted the bigger cabins appreciated very well in the last two years, but the smaller cabins exceeded the larger ones from what I have seen.
Really, your question is one of opinion though, and ultimately you will have to decide which way you want to go. There is no right or wrong. You can do well in either space. Wish you the best.
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
4y
Quote from @Account Closed:

Quote from @John Underwood:

One bigger property can make more with less effort than 2 properties.
Just curious, is there a healthy demand for the bigger properties?

I have a 6 bedroom, 4400 sq ft mountain cabin that can sleep up to 23 people.
Wow I can't believe how full it stays. One group checks out another arrives in the afternoon.
6 Reply
Tim Ryan
Investor / Mentor / Contractor · Arcadia, CA Buying Out of State · Member since 2015 · 654 posts · 622 votes
4y
It sounds like you might be thinking multiple SFR could be scaling. But in reality multifamily is scaling and offers economies of scale. I'm assuming the "larger" is multiple units? If not, then that's what you should be looking at.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
More properties require more work, but they also provide a better return. Your cash flow can be higher. Your equity grows faster. You can have more tax deductions. When one property is vacant you are only losing 33% of your income instead of 100%.
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Marcelle Abel
OP
Member since 2022 · 43 posts · 25 votes
4y
Quote from @Nathan Gesner:

More properties require more work, but they also provide a better return. Your cash flow can be higher. Your equity grows faster. You can have more tax deductions. When one property is vacant you are only losing 33% of your income instead of 100%.

Very good point! Thank you!!
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Billy Smith
Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes
4y
My small property rents very fast it is good shape and in a great location, the bigger S.F.H still rents quick but just a tad slower. I really focus on location or no dice. Some folks make good money buying in the C to D areas just not for me. I am in the camp buy 2 S.F.H.
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Jonathan Hoflander
Investor · Overland Park, KS · Member since 2022 · 5 posts · 1 vote
4y
Quote from @Marcelle Abel:

Quote from @Nathan Gesner:

More properties require more work, but they also provide a better return. Your cash flow can be higher. Your equity grows faster. You can have more tax deductions. When one property is vacant you are only losing 33% of your income instead of 100%.

Very good point! Thank you!!

I agree with this 100%. Just keep in mind that with more properties you tend to have more roofs, appliances, HVAC, etc. Reserving money in a capex fund will cover you though. Personally, I like more properties being earlier in my journey but I may trade up to fewer, larger places down the road if I find that it is difficult managing 10+ properties. Best of luck on your journey!
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Muhammad Amawi
Investor · Cleveland · Member since 2022 · 131 posts · 115 votes
4y
Hey Marcelle,
The one larger property may come with less headaches in the long run, however you may benefit more from three smaller properties with appreciation.
In my opinion it's all going to be based on what the numbers run and your personal goals as a real estate investor. If you're here for the cash flow and the larger property shows more potential than the three other properties, I would go with that.
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Paul Sandhu
Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
4y
I've got a dozen places that are 2 bedrooms, and 4 places that will sleep 7-8. Smaller places are rented out more often, but bring in less money each week. Bigger places bring in more money each week, but they are rented out less frequently. At the end of the year they both gross about the same.
I would go with smaller places.
2 Reply
Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
4y
Quote from @Marcelle Abel:

Running into a wall here and would love your thoughts and insights as I try to scale as a new investor. We have a chunk of cash to work with which I had originally planned to buy three STR properties with (traditional mortgage, 20% down) BUT I found a larger property with a larger price tag that looks to cash flow very well if done right. So my question is...do I spend 2/3 of my cash on this one property or stick to my original plan and look for three properties with a more moderate cash flow? Thanks everyone!
Run the numbers and do a scenario analysis that includes all risks associated with both property investments.

Define "larger" property. 4 units? 30 units? 60+ units? There are very important differences with each of these, namely property management.

Also, these type of properties are built in different types of neighborhoods,... and you do not want to be in a "rental neighborhood" which will become a property management hassle.

FYI: I've owned and managed properties all over the country for the past 20+ years.
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Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
4y
Quote from @Muhammad Amawi:

Hey Marcelle,
The one larger property may come with less headaches in the long run, however you may benefit more from three smaller properties with appreciation.
In my opinion it's all going to be based on what the numbers run and your personal goals as a real estate investor. If you're here for the cash flow and the larger property shows more potential than the three other properties, I would go with that.
Not necessarily true. That's a generalization. It depends on the neighborhood and quality of the subject property.
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Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
4y
Quote from @Nathan Gesner:

More properties require more work, but they also provide a better return. Your cash flow can be higher. Your equity grows faster. You can have more tax deductions. When one property is vacant you are only losing 33% of your income instead of 100%.

That is not necessarily true. That is a generalization.
It depends. It depends on the quality of property and therefore the quality of tenant. If they are both high, and you management them property, more properties can be MUCH LESS work, if done right. For me, I obtain high quality tenants, most of which are in services or tech, with multi-year (lower vacancy) automatic escalating rental rate leases based on CPI increases.
There are infinite ways to invest and it's definitely possible to increase number of properties while keeping the time and energy managing them to a minimum.
I've owned and managed properties in 5 states, 8 cities for over 20 years.
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Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
4y
Quote from @Tim Ryan:

It sounds like you might be thinking multiple SFR could be scaling. But in reality multifamily is scaling and offers economies of scale. I'm assuming the "larger" is multiple units? If not, then that's what you should be looking at.

BOTH are "scaling". You can do very well financially doing either. There are pros and cons to both.
Any benefits to MF can be countered through various techniques while owning a high quality portfolio of SFR.
Name the benefit and I'll tell you how.
The important info she needs is how to effectively run financial scenario analysis, include risk considerations, so she can decide which route is right for her uniquely.
Though there are things that can be learned from others, individual investors have unique talents, unique goals, and can formulate a unique strategy that works for themselves.
RE investing is a solo game.
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