What kind of cash flow on SHF and am I thinking strait?

Question

My market is the Cleveland suburbs. I decided long ago that I want single family homes in B & C class neighborhoods that are sustaining or growing in population.

I come across a lot of investors at my meetings that are encouraging me to invest  in Cleveland multifamily homes because the cash flow is so amazing.

As mentioned in previous posts - I have a business that provides me with 6 figures + right and growing - so cash flow is not a problem. I feel like I am approaching real estate different from an investor who relies solely on rental cash flow.

I am okay giving up some cash flow because I am more interested in mortgage pay-down/tax benefits/appreciation.

Am I mentally approaching this wrong? Should cash flow be my main concern? I am afraid of buying a 40K house in Cleveland Heights that is going to be worth 45K in 10 years.

Should my current income change my approach?  Would it change yours?

Chris Masons · Answer

sure, these are typically single families with a small 1 bedroom apartment add on that has been created. The name comes from Its original use being a family member or extended family member living in it.

As I said I love this model for reasons mentioned above.

Hope this helps!

Chris

Scott W. · Answer

i know a guy who has a duplex. it's a 1 br on the top & bottom, which makes things difficult. it took him 4 months to rent it out - & this was in the summer.

you've got 2 rents, which minimizes the risks but you've got less turnover in a SFH & if doesn't rent, you're caughing up 100% of the $. you also get better appreciation.

pros & cons for both.

John Stevenson · Answer

@Ed Lee makes a good point. The difference between the SFR and the duplex is just too great.  Do not forget to take into account vacancy which can eat a profit margin.

But if after sound research you find that it really is going to net you $800/month, then I would recommend adding a few of these properties to your SFR portfolio. The additional cash flow will help you make more SFR investments.

Ed L. · Answer

I don't see any possible scenario where the duplex could bring that much more cash flow compared to the SFR.

SFR tends to bring 40-50% more per door when compared to duplexes.  i.e. a duplex might bring 600 per door and a sfr would bring 1,000-1,200.    The duplex still cash flows better, but not 500% better.

I favor SFR because they seem to be easier to rent, attract more stable tenants, and have more exit strategies.

Adam Craig · Answer

Thanks Scott - I appreciate the confirmation

Scott W. · Answer

the investors go where the hot trends are. now, it's all about the cash flow.

the fundamentals don't change - you make the most of your $ on the appreciation. buy low, sell high.

don't worry so much about the cash flow.  pick good schools/decent neighborhood.

since you're young, you will be thankful in 10 years.

Chris Masons · Answer

While I invest in multi families I have developed a certain style of 2 family or even mother daughter single family that I find works really well...

I Strongly prefer the 2 family that has a bigger apt on first fl. IE. 2 or 3 bedroom unit with a usable basement maybe, garage, yard etc... This tenant gets use of all these anemities..  2nd fl. being a smaller unit 1 bedroom ideal for a single guy or girl or a couple at best.

This works well for alot of reasons: The family on first fl. is looking for the comfort and feel of a single family which they are getting, 2nd fl. person is just looking for a place to eat/sleep/study etc... You don't have a big family living upstairs creating alot of noise, the most it is are 2 people.

I find these style properties very easy to manage and I would venture to say there is a huge difference  VS managing a duplex that is setup similar on both floors.

regards,
Chris

Jeff S. · Answer

Adam, you are on a site that favors cash flow over appreciation and rightly so because of the recent crash in prices. The thinking is that cash flow will buffer any additional fall in home values.

Historically, appreciating properties have been the better investment because of inflation and the fact that there are only so many good areas in a city.

You might consider lower cap properties that are in higher demand that would be found in areas that are desirable. The low caps are higher priced for a reason and that reason won't change unless there is a dynamic crash in the market.

Chances are you don't want all that goes with the low budget duplex and managing these places with low income to managers is a serious issue.

You can afford to buy properties that have upside. A used house that can't be rebuilt for the same price might be a good bet. Good luck.

Take it that you won't need retirement money anytime soon?

Chris Masons · Answer

Adam,

In the example you gave I would pick the multi family all day long. I too work a full day time job and invest in multi families here in NJ.

Cash is King in this scnario.. Netting 800 for a 65k investment is just too good a deal to be passing up. The future appreciation of RE is not a given or a guarntee. Just my opinion....

PS. I am assuming when you say multi family you are talking 2 family?

regards,
Chris