Multifamily Markets, 5 to 20 Units

6 Replies

Hi Everyone!

I am looking to get into the real estate investment game, but a lot of the single-family homes do not produce great cash on cash returns, at least in areas I would buy in.  As I consider myself knowledgable enough to be dangerous, I'd actually like to buy a smaller multifamily of 5-20 units in a solid yet affordable (not coastal) market.  I have been looking for SFRs in Kansas City, Indianapolis, Birmingham and Memphis - Do you guys think these are also solid markets for 5-20 unit multifamily properties?  If so, can anyone recommend a good real estate agent/broker to work with in this property type?  Thank you very much for any input!

Indianapolis has a good market for these. I own one and hoping to buy another. A broker in our office has a pocket listing for one I believe.

@Cory Robinson could help.

I have a few SFR and duplexes in Indy and am very happy with the ROI. I also have a 4-plex and getting that leased up was a challenge. Not sure about larger multi families. You may be able to skip the real estate agent and go straight to a wholesaler. There are quite a few in all the markets that you have listed.

Hi @Justi Kobilis and welcome! Yes, I think if you are looking for cash flow you can find it in those markets.  Out of those markets, I have partners in Memphis and recently they have been seeing a lot more interest in multi-family. 

Check this out and look at cap rates, vacancy and distribution of total inventory.  You can also do your own search and change the inputs.

https://www.irr.com/research/#!open-research-card=7484&field_markets[0]=33&field_property_type[0]=0&offset=0&limit=24&

@Justi Kobilis I think lining up financing would be first on your list.  I'm sure you already know this but commercial financing is a very different animal that conventional lending.  Not to mention that pesky 20-year amortization tables don't help the cash-on-cash returns!  If I were in your shoes I'd: 1.) pick a market, 2.) talk to lenders, 3.) figure out what size of property is feasible.  But I am biased in that I believe that your comfort has to come with the metro area and submarkets first.  

I would not recommend anything about 2 units in Indianapolis. I have owned several quads as have my clients, some are really good and others have been challenging. The tenant class in these is very low, unless you pay quite a bit more and do a higher end rehab (which drops your ROI down to probably where you won't be interested). Indy is GREAT for strong cash on cash returns on singles and duplexes. Singles hitting 11-15% net cash on cash without leverage is certainly very strong, about the same with duplexes when you account for the higher vacancy factor as they are more transient. Good luck!

Thank you for the input everyone!  I am actually a commercial RE appraiser and I tend to be very conservative when it comes to projections on income and expenses going forward over the next 10 to 20 years.  It seems like good deals on multifamily are harder and harder to find, at least in better areas of the midwest metros.  What are you guys seeing as far as operating expense ratios on your properties (expenses as a % of effective gross income)?  Typical multifamily in CA looks like 40% to 50%, less for higher end/newer properties, a bit more for the lower class properties.  Does anyone have a good broker they recommend in Indy or Kansas City for 5-20 unit properties?  Thanks again forum!

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