Starting up as a new investor... multiple small SFH vs 1 large?

Question

First I’d like to say hello and thanks for letting me play. This is my first post and I’m excited to finally get active and be a part of the community.

After a good amount of studying and trying to lear, my wife and I are starting to look into the SFH market in the Detroit area. Where we’re located it’s 30 minutes to the north and I can find multiple homes at a low introductory cost (20-40k) and to the south I can find 100-150k.

My question as a new investor looking to grow and hopefully make some success, is there more value in the long run to multiple lower income properties vs. a single higher income property? My thoughts are the total cost to purchase 4-5 homes that can pull $500-600/month is less than the cost to outright purchase a higher valued property. But the nicer property can get close to the combined rent on its own. Obviously financing is an option for the larger property, but if cash flow is the goal is one a better option that the other?

Thank you so much and sorry for the long post.

Michael Ciesielski · Answer

If you are planning on self-managing the properties, then I suggest starting with the 1-2 properties that are the "middle" level SFH or a small multi-family (duplex / triplex). This way you get to build up your experience as a property manager while having more than one unit (build scale).

I currently live in Flint so if you end up looking in this area, let me know and I will do what I can to help.

Jer Yeung · Answer

# of doors / scale matters.  Even if you're talking about 1 home versus 3-4 homes that net the exact same cash flow, having 3-4 doors gives you diversification and puts less at risk at any given time.  The downside is that you end up with multiple houses to keep up and multiple tenants to deal with (which could be a hassle).

I'm all for scale if done properly!

Christian Hutchinson · Answer

This is always a challenge for people.  I would do 2 homes at the 40-60K range thats in solid working class cities/suburbs.  Unless you have some real know how don't go low-income, there are too many variables.  Now if you have a family friend, a close friend, or someone who just willing to help you, and will help you score 5-8 properties in Flint and get them tenanted.

Get 2 places see if you like it, build up some more cash, and go more aggressive in your 2nd round of buying. I think at your pricepoint there might be some deals to be had in places like Waterford, Romeo, Holly, maybe even Fenton or Lapeer.

Account Closed · Answer

@Matt Kelty  I would go with the one larger home, especially considering it's your first one.

The cheaper properties will me more management intensive and will attract a lower class tenant. As long as you do your numbers right and go through a pretty thorough screening process the ~$150k property should be all smooth sailing, which may very well not be the case with the cheap houses.

In addition to that any repairs you end up having to do in the future cost the same on 150k house as they do on a 20k house. If you buy three cheap ones and a year in you need to do a couple of furnaces and a roof it'll eat up all that cashflow you just made! Definitely could be something to consider.

Matt Kelty · Answer

@Jamiel Strickland

Thanks again Jamiel. Obviously there are lots of ways to approach the game. I suppose that’s what makes it all so much fun.

Matt Kelty · Answer

@Igor Mike Kajpust

Great point on the repairs x’s number of units.

Thanks Mike. I appreciate your input. Good luck this year.

Jamiel Strickland · Answer

@Matt Kelty ,

There are pros and cons to it, but I like to have a larger portfolio with buying more for 120k than just having 1. It can be more day to day work, more headaches but I think you spread it risk out better.

Matt Kelty · Answer

@Michael Ciesielski

Michael, thanks for the suggestion. I’d be curious to see the “middle” ends up. What are your thoughts on Grand Blanc? It sounds like it could be the next Clarkston for folks slowly moving north.

I appreciate the feed back. We may need to grab a cup of coffee one day. Thanks again.

Edquan N. Dantzler · Answer

Hi @Matt Kelty,

I agree with the other comments here. It really depends on your risk tolerance. The lower the price point, the increased risk factors. I fully understand your question, as I am in Genesee County, and know the challenges we face in the area, and Michigan in general. I currently have 2 SF rentals, and a third under renovation. Minimizing vacancy is key if you decide to go with lower price points; but cashflow is much more attainable in this market. Run the numbers multiple times, and trust your gut! You gotta start somewhere!! Feel free to reach out to me if you would like to brainstorm (which I need help with also), and/or have questions about this area.

Matt Kelty · Answer

@Jamiel Strickland

Thanks for the suggestion. I’m looking more in Genesee county vs northern Oakland, not Detroit proper.

I guess my question was more along the lines of, if you had $120k (as a talking number) to invest, would you look at one larger more expensive SFH or multiple small lower income SFHs? In the end the monthly cash flow could be close to the same, but you may be able to get more properties for less than the cost of 1 in a nicer town. Is there a pro or con to either situation?

Thanks again.

Starting up as a new investor... multiple small SFH vs 1 large?

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