What is a better strategy today?

Question

What does the BP community think is a better strategy right now?
A) Buying a small multifamily in a market with low inventory for $50-75K down and getting a rate in the 7-8% range. Being OOS with a property manager watching over your property. Potentially buying the property 5% or more above actual value. The property is turnkey mostly with minor repairs and potentially below rent tenants.

B) Buying a syndicate where you are a limited partner with 5% return and potentially a 20% IRR. The property is being sold in a big MSA in Texas and purchased under what the original Syndicate purchased it for. This is a value add play in a big market where renovations and other features added will increase rents.

What does BP think?

Stuart Udis · Answer

Neither option seems to take advantage of the market conditions. What's missing here is the fact you are asking us for advice on which investment opportunity is best for you when we don't know your strengths, skillsets or time availability. These factors might make one investment option or strategy more appealing or successful for one person but not necessarily another.

Bruce Woodruff · Answer

Well let's see......buy a few SFH fixers and make them pretty , then STR them?

Or buy an equestrian estate in AZ and rent out the stables to horsey people?

Get an abandoned strip mall in an area that is about to explode and put in a brewery?

I dunno, there are lots of options besides those you mentioned...

Carlos Ptriawan · Answer

just buy directly owned MF 1-4 and you are all set. Location doesnt matter

John Warren · Answer

@Vlad B. there is a lot of pain being felt in the syndication world right now. Bigger isn't always better. I think syndications offer good opportunities for those who want to diversify, but I wouldn't start there if you are building a financial base.

Option A is better if you live locally to the property, and if you can be even remotely hands on. You also have the possibility for your properties to appreciate wildly, which is a huge bonus of investing in the 1-4 unit space. I have had clients make 100k in less than a year on small multi units that they put down 30k to purchase. This was LUCKY, but it was the kind of luck that only happens to those who own the real estate.

Bruce Woodruff · Answer

Why are those your only options? I don't like either one of them....

JD Martin · Answer

Given just those two options I would pick A for sure. I believe there's going to be a reckoning on a lot of these REITs and it's not going to be pretty. If you can withstand a market dump in MFH you've always got the ability to wait out the market, and in the meantime assuming your leverage is low make a little cash flow while you are waiting it out.

Is there a reason you are only interested in small MFH or REITs? There are other ways of investing in RE.

Michael Thach · Answer

This is very true. I agree with this. But this requires different knowledge, experience, team and involvement. In my case I would do commercial multifamily turned into MTR. There is just so many ways to make a deal profitable. This is the beauty of real estate. Someone might just see an abandon unprofitable property, some will see a goldmine after repair and STR. Different knowledge, skillset and personality will lead to different results in the same situation.

Michael Thach · Answer

This depends very much on personal preference. Do you want to learn real estate and have a word to say ? Having it under your control is what I prefer but I have investors who like me to manage their investment. They are mostly high earning income individuals who don't want to spend the time and headache involve.

Return wise, both will make most likely about the same if they are manage to their full potential. So is also very important to compare who is the property manager and who is the syndication team.

Samuel Diouf · Answer

Hey Vlad,

I find plenty of deals in Ohio that you can buy for under market value. What is the reason you are looking to buy 5% over the market?

Paul Gomez · Answer

There's other options for option B too, like mobile home parks and conversions. 5% seems low, unless you had a ton of LP equity. If you are ever looking for a JV opportunity in Dallas, I am always looking for private money partners to close smaller deals where we could keep more of the equity and not rely on a big syndication.

What is a better strategy today?

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