Jump to small apartments

[Conrad Cortes]

I wanted to see if there's anyone out there who regrets moving primarily from SFR to small multi family style apartments. I've been finding some million dollar properties with about 10 units. They are in small towns in Texas and with just preliminary research they seem like ready to rock properties. (But that's not what this post is about).

I’m curious if anyone out there would go back and instead of getting a lower quality apartment get more SFRs or if they wish they secured more financing to get a bigger budget.

I know this is dependent on my own personal goals but I’m still deciding on what those are exactly so I’d like to hear the communities thoughts!

[Charles Carillo]

@Conrad Cortes

I started investing in multifamily properties in 2006, and one of the biggest lessons I have learned is to avoid low-quality properties. Just don't do it! Yes, there are some investors that have made their C-/D properties profitable investments; however, it takes a specialized investor, along with a management company (usually their own) that understands how to deal with these properties and the tenants that live there. For the majority of investors, this is not what they want, and this is more than what they bargained for. 

There is a reason that most large, sophisticated investors and private equity firms don't buy old, low-quality properties. Rent collection rates usually decrease as property ages (do you know of a 100-unit 1960-built property that has higher collection rates than a 100-unit 2020-built property?). You will rarely have a month when all tenants pay (on-time or late). You will notice that maybe you should have become an eviction attorney instead of an investor when you realize how much you need to pay your attorney. 

Another important point is that low-quality properties are usually cashflow plays. There is limited appreciation. The only exit strategy for investors is to sell them to another C-/D investor. To mention again, management is a nightmare (for most D/C- investors). Daily management is required, most tenants aren't really concerned with maintaining a credit score or maintaining their unit (or your property). It would be great to go into a C-/D property and fix everything (correctly); however, it is not feasible. If you do invest the money, it will not last for long (broken, stolen, etc.). In the end, all problems are not really fixed; more like patched.

Don't invest in real estate unless you are able to buy solid C+ properties and above (preferably B- and above); in good neighborhoods, and in growing markets.