@Phillip Massey
Hi Phillip, my wife and I have acquired 18 SF rental homes. We purchase 2-3 properties per year, our target is 20-24 homes.
We only buy homes in owner occupied safe neighborhoods and target an average rent which is aligned to the average family income of the Triad NC area. We target $900 to $1400 rental rates with a 8-10% cap rate.
We have focused our purchases in a 10 mile radius, in many cases, we have multiple homes in the same neighborhood or on the same street. This allows us to reduce our travel and provide better service to our tenants.
Also, we seek long term tenants and incentivize four year leases with a minimum of two year lease. While we may lose some rent increases with long term leases, we lower our turn over and reduce our expenses. Also, our area cannot support constant rent increases so long term leases have much more benefit to our strategy. However, we are able to charge slightly above market rental rates because we do a good job rehabbing and maintaining our properties. I do not believe this model is possible with multi family.
We closely manage and maintain our properties to insure the highest quality product for our tenants. Also, we are a buy and hold investor and believe in maintaining our properties in top shape. We hear horror stories from many of our tenants about their past landlords and the poor maintenance. We believe this helps maintain tenants in SF rentals. When we secure a good tenant, we want them to stay forever.
We target tenants who want to live in neighborhoods and do not want to live in apartments or condos. I believe SF tenants take better care of our properties because they treat it like their home and we provide a high quality product.
We buy distressed properties, rehab and rent. Our goal is to rehab enough properties each year to minimize our taxes on the positive cash flow. I prefer to invest in more properties vs paying taxes to Uncle Sam. Our goal is to re-invest 100% of our profits for the next five years while paying down all of our mortgages. It is hard to find distressed multi family properties that would allow the same rehab cost to offset my cash flow and minimize taxes. One of our biggest goals is to minimize taxable income.
After our first four Homes, our progress slowed because we could not get under written by Fannie, so We only purchased with cash for a few years which slowed our progress. Several years ago, I found a local bank which allowed us to accelerate our purchases. We have decided to only take 10 yr loans because our goal is to pay off all the properties in the next 5-7 years. The principle pay down on a 10 year loan if 60% of the total payment. We typical finance one free and clear property to purchased the next property. After you acquire 3-4 free and clear properties, this model allows you to quickly add additional rentals. This model is possible with SF or multi family since we use commercial loans.
We believe SF homes offer lower risk if not leveraged to heavy and purchased at or below market price. Also, the rents must be aligned with the family income of the local market. If family incomes are NOT rising at the same rate as rents, increased rents are not sustainable.
I agree with other comments that multi-family should offer higher returns and faster equity growth. However, it requires much more due diligence than I have time to commit while working in my career.
We have developed a business model for our area and the numbers are easy to predict without much effort or added risk. We are conservative investors and looking for long term income growth and not short term profits.
As I get closer to retirement age, I believe SF properties offer lower risk with our business model vs MF.
Also, In our area, their our many major MF construction projects ongoing which will soon place a major strain on MF rentals. I believe SF properties are not competing with that market and have lower risk to the current over building we see in many markets.
