Growing rental portfolios questions

[Henry Hsieh]

As I grow my portfolio, there are two problems I run into:

1. When your SFH portfolio become too big, what do you do? Sell multiple properties at the same time and 1031 exchange it to a multifamily property? Or, do you just keep hogging more SFH to take advantage of that appreciation while renting? What are your experiences?

2.  When managing multifamily properties, I foresee a problem with growth.  You have a 10 unit, with loan paydowns and interests, aren't you stuck with taking no cut yourself from that net income until you have enough equity both paid off and built in through remodeling to 1031 it into something bigger like a 20 unit?  What's the play here?

[Stuart Udis]

@Henry Hsieh I am going to focus on point 1: SFH Portfolios. The short answer is this is cirucmstantial but you are also getting ahead of yourelf. Not all SFH portfolios are created equally and its important to idntify the type of SFH portfolio you have. Are these home in stagnant C/D neighborhoods where the equity is merely principal paydown in neighborhoods with low home ownership? Are these SFH's that were purchased in neighborhoods that transitiond and experinced appreciation due changes in the neighbohrood and now have higher home ownership? Or are these SFH's where the fundamentals exist but haven't experienced the primary appreciation event or transitionened to higher home ownership yet?

In changing markets theres normally a short window where a more significant appreciation event occurs and these neighborhods then tend to level off to more normalized appreciation. Catching that wave just right is often when SFH investors perform best and then transfer the equity into other assets.The biggest mistake is when investors sell prematurely not recognizing the fundamentals exist. Normally those investors are chasing cash flow and don't understand the asset class they are investing in. Those who buy in C/D stagnant neighborhoods are also usually chasing cash flow (or can't differentiate appraised equity that is realizable vs. paper equity). They rarely stand a chance which is why I put thm below those who buy in the correct markets but sell prematurely not understanding the investment they made. If you are in the stagnant market, I generally recommend selling. If there's any gain from buying these properties its normally experience and relationships. Understanding where your SFH portfolio falls will help dictate how you proceed. It may be a case of having homes in each of these categories.

I learned this first hand which is why I am vocal on these boards about SFH investing. To provide some context, when I began investing in 2013-2015 I acquired a portfolio of close to 30 SFH's in what was a C neighborhood at the time using the 'BRRRR METHOD' (even though I didn't know that term at the time). I purchased beleiving I was building a portfolio of cash flowing proprties. What I failed to realize was I was in the equity accumulation business. The correct neighborhood fundamentals were staring me in the face, but I didn't undrstand what I should be looking for. By 2016 I sold each of the homes, mainly to FHA buyers with 5- 6% seller assists or to other investors and each and every transactioin was an excruciating process (if you've sold to FHA homs in the lowest price points, you undrstand how painstaking of a procss it becomes). Most homs homes sold between $130K-$150K. My 2019 the same homes were re-selling selling for $275k with no new improvments made to them.