Multifamily Investing or Single family, which is better?

Question

I had the chance to speak with Michael Blank on my podcast about just this.  If you are interested, please give it a listen, and let me know what you think.

http://commercialrealestatepronetwork.com/podcasts...

Mike Dymski · Answer

Some people like salty, some like sweet...some like both.  There are a lot of polarizing opinions on BP about MF vs SFR, cash flow vs appreciation, self-management vs third party management, buy-and-hold vs flip, purchase vs lend...the list goes on...and most of those opinions are colored by member's individual experiences and less by respect for different investor's skills, their investing maturation, their personal situation and varying market opportunities.  Each one of those items can trump any number on a spreadsheet.  The better investment is the one that aligns the investor's skill and enjoyment with the market opportunity and the result is brilliance.

Mike Hanneman · Answer

Why is there always a "which is better" debate?

Yes it depends on market , but really just the preference of the landlord. I know people that have made fortunes owning both.

Matthew Norem · Answer

My mentor likes the slightly fewer landlord issues that can accompany single family rentals, the easier resale down the road, and the lower upfront purchasing costs.  But the higher per unit costs, the lower gross rents, and the higher financial risks of the single family are cautionary.

For the beginning investor, my mentor strongly recommends the 2-4 unit, mostly to help build success by keeping the operational per unit costs down and gross income higher,  without the significant landlord headaches of 5+unit, or the higher operational risks of the single family.

Steve Vaughan · Answer

I have both.  Both have pluses and minuses as mentioned and a lot does depend on your specific market.  If your in Portland,ME with @Jim Shiminski, multi's flat-out don't make sense (as a buyer).  You will starve or go broke with an either/or mindset there.

My favorites by far are my multi's, but I self-manage.  I control and get to the bottom of repair requests ("my stove is broke") and upgrades and costs of turnover.  PMs cost much much more than the 8-ish% advertised and my feelings on multi's would be different if I had one due to the relatively higher management intensity of apts. I know this because my most motivated sellers have just fired crummy PM #4. When you select your own tenants, this can be better mitigated as well.  You give a rip.

After having 67% of my portfolio in multi's for so long, I feel it even more when I go to a house to clean one gutter system, repair one fence, driveway or roof, etc.  I like to do this work for 10 if doing it for one.  I also like to control the value of my asset via a higher NOI.  Houses don't care about NOI.  Your house is only worth what a neighbors' is worth, good or bad.

With houses, you upgrade to the neighborhood.  I have a rental with granite and stainless.  ROI is crap, but I will sell some day and don't want to be 'that house'- the 1 without.  With multi's, you upgrade to functional and durable while being as attractive as possible.

During the GRC when home prices were dropping like stones, my multi values were still based on financials.  Buyer demand dropped, but not prices. Tenant quality rose as homeowner's moved in. Rents rose. Values rose.  Diversify your assets.

All this said, my sale metrics I established years ago are close to being met in my apts.  Cap rates have compressed to where market value is close to re-build cost. Never thought I'd see this.  For instance - I bough a 7-fam in '05 for $345k.  It was insured for $600k based on construction and square footage.  Said to myself - if market value ever reaches re-build cost, I'm out.  Guess what?  And re-build cost has risen $200k!  Insanity.

I'm finding it difficult to buy more multi's (or just about anything) in my market.  Don't be afraid to take some chips off the table.  I will be selling 40% of my multi portfolio next year.  Just don't know what market to exchange in to.

Good discussion @Darrin Gross.  They both work.  Play to your market and ownership style and goals.

John P. · Answer

Well said. I often get a chuckle out of people that are convinced they have THE BEST way to invest.  There are many best ways depending on a huge variety of factors.  In my opinion the worst investment choice is "knowing" your way is the best and not honestly allowing yourself to consider other options.  You can miss a lot of opportunities.  If people were open to really listen to other experts they can learn a lot. I try to come to biggerpockets everyday with an open mind.

Mike Dymski · Answer

@Winston Parks Glenn is being humble...check out his podcast on it below

https://www.biggerpockets.com/renewsblog/2015/02/19/bp-podcast-110-eliminating-the-hassle-factor-as-a-landlord-with-glenn-mccrorey/

Glenn McCrorey · Answer

It's basically investing in single family homes at market rent but you always know you are going to get paid and they may live there many many years.  Eliminating vacancy and turn over is what makes it so apeallng.

Winston Parks · Answer

@Darrin Gross @Glenn McCrorey would you be willing to shed more light on community based living services in smaller markets? What would be the difference between this and a nursing home or assisted living? Seems like a very interesting niche as I travel to several towns per week ranging with a population of 5k to 35k.

Thanks for sharing!

Glenn McCrorey · Answer

@Darrin Gross  I rent almost exclusively to companies that provide care for individuals with special needs.  Google " community based living services" and your area to find out what companies you might be able to assist with their housing needs then call 'em up.

Multifamily Investing or Single family, which is better?

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