advantages of moving from triplex/quad to larger commercial?

Question

Hi all, i was wondering if anyone has experience moving from buying multiple quad/triplexes, and then moving to larger commercial units like 20+ unit apartment buildings? what is the advantage of moving to these larger buildings? from what i can tell the profit margins/cap rate don't appear to be much better (at least based on the prices i'm seeing)...actually the gross rent / purchase price seems to be higher for many quad/triplexes than the larger apartment buildings in my area.

i guess one of the advantages is everything is under one roof, easier to manage, and easier to hand off to a property manager (less headaches)? let me know what you think, thanks

Account Closed · Answer

@Russell Butler

Commercial Multi: net operating income. What’s the life expectancy of the building itself.

Single, duplex/ suited, tripled, and most all 4 plex = how nice are the taps and what are the bedroom sizes and 9 minutes later the overpaid undereducated no trades background appraiser can’t remember if the basement was finished or not and tells you a number.

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Account Closed bigger building = economies of scale for opex and capex.... one parking lot to plow, one rood to repair, etc. Also, one vacancy in a 20 unit building = no big deal. One vacancy in a duplex = 50% of your income gone. You should also be able to negotiate a better PM rate with a larger building.  Finally, larger MF = commercial mortgage which has different (better IMHO) lending criteria. Understanding your property value becomes much easier... NOI/cap rate

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ah, i see. so you're saying with commercial properties, forced appreciation is more straightforward because the value is directly related to the rental income (whereas with smaller buildings like tri/quad this is not the case)?

Account Closed · Answer

Hi Kris, not sure i understand your comment. are you saying there's lots of overpriced commercial properties on the market right now? or tri/quads?

i agree its probably a lot easier to force-appreciate a smaller tri/quad (although i have no experience in this).

Account Closed · Answer

@Russell Butler

I was saying that the majority of multi family buildings are over priced and under maintained. Current owner sees the roof being near replacement, the parking lot being junk, and the windows leaking and puts it for sale for arv. Or higher.

And actually I was saying forcing appreciation on a multi becomes a much more straightforward process once you’re able to increase rents and stabilize expenses. Its value becomes less about 1 appraisers opinion and more a math calculation. With smaller buildings I can raise rent 40% and the bank doesn’t show apply any of it to a value calculation.

Account Closed · Answer

@Russell Butler

Lots of under maintained over priced buildings out there across the country right now. Don’t buy someone else’s deferred problems.

Forced appreciation on multi family becomes much more straightforward

advantages of moving from triplex/quad to larger commercial?

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