Door count is a terrible metric. Please stop using it.

[Dave Meyer]

Door count is the worst (commonly discussed) metric in the real estate investing community. Why does everyone use it? Can we all decide to collectively kill it? Or are there some of you out there that stand by door count being a useful barometer of success? Honestly, I'd love to hear the argument for why this metric is useful, cause I can't think of one -- so please reply back here. 

Here's my argument. Door count is what many in the analytics world would call a 'vanity metric.' It's something that looks important and fancy,  but doesn't actually tell you anything about business performance. Sound familiar?  It's because door count is a useless metric, it exists to pump up the ego of the investor, and nothing more. Here's why: 

1. Door count tells you exactly nothing about the quality of a portfolio. As an example, let's say Jane T. Investor has 12 doors, and she leads with that when networking. Well 12 doors sounds solid, but how are they performing? Are they cash flowing? Do they require enormous amounts of time and maintenance? Are the returns as good as what other investors in your market/asset class are generating? I know people with huge door counts who lose money every month. What good is a 'door' if it doesn't generate returns? Tell me how efficiently your deals generate returns, and then I'll be impressed. 

2. Prioritizing door count makes you focus on the wrong thing. If I wanted to get 100 doors in the next few years, I bet I could -- but you can bet many of those deals would be thin. Shouldn't we be prioritizing quality over quantity?  If I could choose between earning $5,000/month from 10 doors, or from 5 doors, I would pick 5 doors all day long! Good metrics push you towards good decision making, and door count does the opposite. For a lot of people getting lots of doors would be detrimental to their strategy! 

3. Don't even get me started on passive investor door counts. They're absurd. I invest in multifamily syndications as well as residential properties. On the passive side of my portfolio, I am in syndications that collectively own over 2,000 units. Does that mean I own 2,000 units? Of course not, claiming so would be ridiculous (don't tell people on Instagram, though). If I own 1% of those syndications, does thatmean I own 20 units? I have no idea, nor do I care. Why on earth do I care what % of the doors I own? I care about actual measurements of returns like CoCR, AAROI, and IRR to determine if my portfolio is doing well.

There's my argument -- but I want to be proven wrong. Someone explain to me why this metric is useful. 

[Dave Meyer]

@Jill F. those are some very good points. I went into this from an individual investors perspective. I don’t think the metric is all that useful for (especially new) investors to think about. But you and other posters have convinced me that the metric is useful from a management perspective, and from a passive perspective. If you manage your own doors, door count does speak to your experience in management, even if it doesn’t demonstrate quality. Thanks for your input! 

[Stuart Udis]

I am happy to see this subject is being discussed and particularly hope those just getting started take the time to read the different viewpoints. Unfortunately cash flow and unit count are the two metrics most are taught to chase which leads to buying in the lowest barrier markets lacking any fundamentals that are indicative of creating any true net worth or gains (with limited exceptions). From my observations its usually the individuals offering mentorship or coaching who teach this because its the easiest way to show success and justify their fees despite the students winding up with lousy assets. 

Many also promote their unit count to  raise capital from inexperienced real estate investors who don't know any better and equate unit count to success and track record. How many syndicators or GP's  "manage", "control" or "oversee" hundreds or thousands of units, but don't OWN their portfolios? I believe the worst representation I came across was an investor in my market, Philadelphia who purportedly owned hundreds of units but all I could find were a few small 3-6 unit multi-family buildings. It turned out he was also involved  in a storage unit building with small 3'x5' lockers renting for $100/m.... and those were included in his "unit" count. 

[Don Konipol]

I don’t care about meaningless metrics…….I don’t care about how large you’re portfolio is; I don’t care how many employees you have; I don’t care how many people on your “team”.  3 metrics I find MOST important: Net worth; Cash flow;  Percent of leverage used.   

As a hard money lender I see personal financial statements every day.  A recent one was typical.  The borrower listed real property assets worth $76 million, and mortgage debt of $59 million.  So, how “theoretical” net worth was $17 million.  Except we can make the following assumptions.  First, he likely over stated the value of his assets by 10% (minimum).  So that brings the value of the assets to $68.5million. Then we need to subtract transactional cost of selling (broker commission), so that brinks us down to $64.5 million.  Now we’re at 95% leverage.  A 5% drop in values wipes out his theoretical $5.5 million net worth.  Btw, he’s cash flow negative overall.  Compare this with an investor who owns $5.5 million of real estate free and clear.

The one advantage the former has over the latter is IF values rise he’s in a position to reap substantially more capital gain than the latter.  Otherwise the latter is much more solid and much “wealthier” at current prices. 

This is why I don’t care much for stand alone “gross” figures.  

There’s no one metric that’s going to tell the complete story and not lead to misleading results.  We need a combination of metrics to get a fair and accurate analysis.  

[Paul De Luca]

I think it's mostly used as an ego metric. Obviously there is a correlation between number of doors owned and profit/portfolio value/success so with just the door count number people are able to make certain (perhaps inaccurate) assumptions about your portfolio. So I think people use it as a quick shortcut and yardstick for comparing their own success against other investors. Getting the full context of someone's portfolio takes more time and probing.

[Bob Stevens]

Quote from @Dave Meyer:

Door count is the worst (commonly discussed) metric in the real estate investing community. Why does everyone use it? Can we all decide to collectively kill it? Or are there some of you out there that stand by door count being a useful barometer of success? Honestly, I'd love to hear the argument for why this metric is useful, cause I can't think of one -- so please reply back here. 

Here's my argument. Door count is what many in the analytics world would call a 'vanity metric.' It's something that looks important and fancy,  but doesn't actually tell you anything about business performance. Sound familiar?  It's because door count is a useless metric, it exists to pump up the ego of the investor, and nothing more. Here's why: 

1. Door count tells you exactly nothing about the quality of a portfolio. As an example, let's say Jane T. Investor has 12 doors, and she leads with that when networking. Well 12 doors sounds solid, but how are they performing? Are they cash flowing? Do they require enormous amounts of time and maintenance? Are the returns as good as what other investors in your market/asset class are generating? I know people with huge door counts who lose money every month. What good is a 'door' if it doesn't generate returns? Tell me how efficiently your deals generate returns, and then I'll be impressed. 

2. Prioritizing door count makes you focus on the wrong thing. If I wanted to get 100 doors in the next few years, I bet I could -- but you can bet many of those deals would be thin. Shouldn't we be prioritizing quality over quantity?  If I could choose between earning $5,000/month from 10 doors, or from 5 doors, I would pick 5 doors all day long! Good metrics push you towards good decision making, and door count does the opposite. For a lot of people getting lots of doors would be detrimental to their strategy! 

3. Don't even get me started on passive investor door counts. They're absurd. I invest in multifamily syndications as well as residential properties. On the passive side of my portfolio, I am in syndications that collectively own over 2,000 units. Does that mean I own 2,000 units? Of course not, claiming so would be ridiculous (don't tell people on Instagram, though). If I own 1% of those syndications, does thatmean I own 20 units? I have no idea, nor do I care. Why on earth do I care what % of the doors I own? I care about actual measurements of returns like CoCR, AAROI, and IRR to determine if my portfolio is doing well.

There's my argument -- but I want to be proven wrong. Someone explain to me why this metric is useful. 

Correct, door count is meaningless. I bet you our 81 unit with about 270k NET income on a total investment of 1 mill, YES, about 25% NET, is more than most make on 200 doors. Heck my SF's bring in net about 10k a year or more with under 80k Invesment. It's all about NET, can't pay your bills with gross LOL 

BTW love Holland. My Ex is from Utrecht, wonderful country  

[Jill F.]

Quote from @V.G Jason:

Quote from @Jill F.:

@V.G Jason

I do not look at Door count as a financial metric. You must st have misunderstood what I wrote. . Door count is a useful way to make quick comparisons between assets within a familiar market. Door count has no bearing on the cost, value, or cash flow of an asset.

Quick comparison between assets, but I can't use it as a financial metric. I am confused

Door count is a useful way to group assets, not a financial metric. Door count, like zip code tells me useful information about an asset to help determine it's potential for future cashflow (a financial metric). It is not a standalone financial metric. Likewise, current cashflow does not tell you anything about the future potential for an asset. I hope this clears up your confusion.

[Mark Cruse]

This is an awesome, thought provoking discussion. Reminds me of the old days here. For me, the OP brought up some very valid points. It gives so much insight for newbies to ponder. However, aside from all those great points, still the amount of doors ideology is not useless and  does tell me a few things. Yes, it can be a vague picture but still, if someone tells me they have been in for 3 years and have 20 doors, at the very least it tells me they have ability and aptitude. It tells me they are serious about this business and are not wasting my time networking with them. It tells me that there´s a significant chance that they are in challenging, low income areas.  It wont tell me how successful they are, but if the portfolio is at the very least operating, even if at a chaotic level, they have already shown me  they have accomplished something that many senior level high end investors cant. Whatever they had to do to put all these moving parts together and make them viably work to some degree, tells me about their business mentality and possibilities for future success. Look around, well over the majority these days crash and burn with one SF. The majority fold and melt down over basic sht. Isnt there a topic now about how an investor is crumbling over having their first tenant default? Yea, the door count leaves tons of stuff out but I still feel you can get gauge something from it. The current unserious nature of this business irks me but this person would not fit that category. Great responses! Great topic! 

[Steve K.]

We recently downsized/ optimized our portfolio to less units in better locations closer to our primary, and I couldn’t be happier about that. Less headaches, better tenants, more rapid appreciation of rents and more overall profit, less driving… but maybe not as impressive to someone asking how many doors. I do see the utility of determining whether or not someone has experience or not by asking how many doors they have, it’s a quick way to see if someone is an experienced investor or just starting or is hoping to start, but more doors definitely isn’t always better in my experience. 

[Jay Hinrichs]

Quote from @Steve K.:

We recently downsized/ optimized our portfolio to less units in better locations closer to our primary, and I couldn’t be happier about that. Less headaches, better tenants, more rapid appreciation of rents and more overall profit, less driving… but maybe not as impressive to someone asking how many doors. I do see the utility of determining whether or not someone has experience or not by asking how many doors they have, it’s a quick way to see if someone is an experienced investor or just starting or is hoping to start, but more doors definitely isn’t always better in my experience. 

AS someone who at one time had 250 plus doors I can attest to that.. WAAY to much work for the money in my mind.. I bought into the low end cash flow and regretted it 12 to 16 months into it. But exited.. But I understand rentals is apples and Oranges to what I do today for income which is building new homes and bridge debt capital partner.. We are still in the game just a different lane.

[Stetson Oates]

The fundamentals of a company always win. Ive seen so many investors leverage themselves to the max and be barely successful. Now we will see how many of them will survive. Debt is and has been a tool to be used wisely, I wont do a deal more than 65% LTV or free cash flow me $500/mo. I'm not going to work for $100 a month. I don't understand how these investors who have 100 doors and $85 Million in debt sleep at night. Sure you are cash flowing but who's responsible for the $85 Million? You're worth $15Mill? Sure. This market will reveal the skeletons in the closet.

[V.G Jason]

Quote from @Steve K.:

We recently downsized/ optimized our portfolio to less units in better locations closer to our primary, and I couldn’t be happier about that. Less headaches, better tenants, more rapid appreciation of rents and more overall profit, less driving… but maybe not as impressive to someone asking how many doors. I do see the utility of determining whether or not someone has experience or not by asking how many doors they have, it’s a quick way to see if someone is an experienced investor or just starting or is hoping to start, but more doors definitely isn’t always better in my experience. 

 This is how you do it in the new higher-rate era. You need to mitigate the capex, the tenant risk by consolidation of units & higher quality placements. And the fundamental part of the investment needs to be a bet on the underlying land value as a scarcity play.

We've been saying that on BP for a year + ad nauseum. Quality over quantity--it's literally the most tokened "term" I have on these forums off a google search.

And yes Dave you've been a CF pusher, through and through. I am not confused, you may have pushed "balance" too or whatever you call it but you've been an CF pusher and the places you push it are in spite of quality. BP's been slow to come around to the right way of doing things, glad they're getting on track. 

[Alan Asriants]

Quote from @Stuart Udis:

I am happy to see this subject is being discussed and particularly hope those just getting started take the time to read the different viewpoints. Unfortunately cash flow and unit count are the two metrics most are taught to chase which leads to buying in the lowest barrier markets lacking any fundamentals that are indicative of creating any true net worth or gains (with limited exceptions). From my observations its usually the individuals offering mentorship or coaching who teach this because its the easiest way to show success and justify their fees despite the students winding up with lousy assets. 

Many also promote their unit count to  raise capital from inexperienced real estate investors who don't know any better and equate unit count to success and track record. How many syndicators or GP's  "manage", "control" or "oversee" hundreds or thousands of units, but don't OWN their portfolios? I believe the worst representation I came across was an investor in my market, Philadelphia who purportedly owned hundreds of units but all I could find were a few small 3-6 unit multi-family buildings. It turned out he was also involved  in a storage unit building with small 3'x5' lockers renting for $100/m.... and those were included in his "unit" count. 

 Exactly. Having 20 units in a D class area where have of the properties are falling apart and the value of the combined portfolio is 1M is not as impressive as 4 units in a solid A class area that have plenty of potential of improving in value and provide solid and stable returns. 

[Mark Cruse]

Quote from @Alan Asriants:

Quote from @Stuart Udis:

I am happy to see this subject is being discussed and particularly hope those just getting started take the time to read the different viewpoints. Unfortunately cash flow and unit count are the two metrics most are taught to chase which leads to buying in the lowest barrier markets lacking any fundamentals that are indicative of creating any true net worth or gains (with limited exceptions). From my observations its usually the individuals offering mentorship or coaching who teach this because its the easiest way to show success and justify their fees despite the students winding up with lousy assets. 

Many also promote their unit count to  raise capital from inexperienced real estate investors who don't know any better and equate unit count to success and track record. How many syndicators or GP's  "manage", "control" or "oversee" hundreds or thousands of units, but don't OWN their portfolios? I believe the worst representation I came across was an investor in my market, Philadelphia who purportedly owned hundreds of units but all I could find were a few small 3-6 unit multi-family buildings. It turned out he was also involved  in a storage unit building with small 3'x5' lockers renting for $100/m.... and those were included in his "unit" count. 

 Exactly. Having 20 units in a D class area where have of the properties are falling apart and the value of the combined portfolio is 1M is not as impressive as 4 units in a solid A class area that have plenty of potential of improving in value and provide solid and stable returns. 

 Not that literal but I get what you are saying over all. The class A will give you a lot less headaches and there are great opportunities and probability for appreciation. However, there are people who can operate in the class D arena so I wouldnt dismiss it. If I had the choice in the two id have to do a serious assessment of both. So much goes into it. I really didnt know you could get 20 units for a million anywhere but oh well. What if gentrification hits that 20 unit? What if I can add so much value I can pushed that cash flow to over $500 a door? The amount of leveraging can be astronomical where I can add higher classes to diversify the portfolio. If you know how to operate in the lower level, depending on the scenario you can come out ahead. I get it in theory though and most cannot effectively operate effectively on the other levels. 

[Alan Asriants]

Quote from @Mark Cruse:

Quote from @Alan Asriants:

Quote from @Stuart Udis:

I am happy to see this subject is being discussed and particularly hope those just getting started take the time to read the different viewpoints. Unfortunately cash flow and unit count are the two metrics most are taught to chase which leads to buying in the lowest barrier markets lacking any fundamentals that are indicative of creating any true net worth or gains (with limited exceptions). From my observations its usually the individuals offering mentorship or coaching who teach this because its the easiest way to show success and justify their fees despite the students winding up with lousy assets. 

Many also promote their unit count to  raise capital from inexperienced real estate investors who don't know any better and equate unit count to success and track record. How many syndicators or GP's  "manage", "control" or "oversee" hundreds or thousands of units, but don't OWN their portfolios? I believe the worst representation I came across was an investor in my market, Philadelphia who purportedly owned hundreds of units but all I could find were a few small 3-6 unit multi-family buildings. It turned out he was also involved  in a storage unit building with small 3'x5' lockers renting for $100/m.... and those were included in his "unit" count. 

 Exactly. Having 20 units in a D class area where have of the properties are falling apart and the value of the combined portfolio is 1M is not as impressive as 4 units in a solid A class area that have plenty of potential of improving in value and provide solid and stable returns. 

 Not that literal but I get what you are saying over all. The class A will give you a lot less headaches and there are great opportunities and probability for appreciation. However, there are people who can operate in the class D arena so I wouldnt dismiss it. If I had the choice in the two id have to do a serious assessment of both. So much goes into it. I really didnt know you could get 20 units for a million anywhere but oh well. What if gentrification hits that 20 unit? What if I can add so much value I can pushed that cash flow to over $500 a door? The amount of leveraging can be astronomical where I can add higher classes to diversify the portfolio. If you know how to operate in the lower level, depending on the scenario you can come out ahead. I get it in theory though and most cannot effectively operate effectively on the other levels. 

What if you win the lottery? I don't invest in real estate based on what ifs. 

Class A is what it is for a reason just like Class D is. 

[Crystal Smith]

Quote from @Dave Meyer:

Door count is the worst (commonly discussed) metric in the real estate investing community. Why does everyone use it? Can we all decide to collectively kill it? Or are there some of you out there that stand by door count being a useful barometer of success? Honestly, I'd love to hear the argument for why this metric is useful, cause I can't think of one -- so please reply back here. 

Here's my argument. Door count is what many in the analytics world would call a 'vanity metric.' It's something that looks important and fancy,  but doesn't actually tell you anything about business performance. Sound familiar?  It's because door count is a useless metric, it exists to pump up the ego of the investor, and nothing more. Here's why: 

1. Door count tells you exactly nothing about the quality of a portfolio. As an example, let's say Jane T. Investor has 12 doors, and she leads with that when networking. Well 12 doors sounds solid, but how are they performing? Are they cash flowing? Do they require enormous amounts of time and maintenance? Are the returns as good as what other investors in your market/asset class are generating? I know people with huge door counts who lose money every month. What good is a 'door' if it doesn't generate returns? Tell me how efficiently your deals generate returns, and then I'll be impressed. 

2. Prioritizing door count makes you focus on the wrong thing. If I wanted to get 100 doors in the next few years, I bet I could -- but you can bet many of those deals would be thin. Shouldn't we be prioritizing quality over quantity?  If I could choose between earning $5,000/month from 10 doors, or from 5 doors, I would pick 5 doors all day long! Good metrics push you towards good decision making, and door count does the opposite. For a lot of people getting lots of doors would be detrimental to their strategy! 

3. Don't even get me started on passive investor door counts. They're absurd. I invest in multifamily syndications as well as residential properties. On the passive side of my portfolio, I am in syndications that collectively own over 2,000 units. Does that mean I own 2,000 units? Of course not, claiming so would be ridiculous (don't tell people on Instagram, though). If I own 1% of those syndications, does thatmean I own 20 units? I have no idea, nor do I care. Why on earth do I care what % of the doors I own? I care about actual measurements of returns like CoCR, AAROI, and IRR to determine if my portfolio is doing well.

There's my argument -- but I want to be proven wrong. Someone explain to me why this metric is useful. 

 In my opinion door count by itself is a terrible metric to grow a business, but it is a necessary metric when combined with other metrics.  And it should only be used for the doors directly managed, not the doors that are invested in through syndication.   When we invest in sydication however we do look at how many doors under management, but we don't make a decision to invest based on that one metric.

[Mark Cruse]

Quote from @Alan Asriants:

Quote from @Mark Cruse:

Quote from @Alan Asriants:

Quote from @Stuart Udis:

I am happy to see this subject is being discussed and particularly hope those just getting started take the time to read the different viewpoints. Unfortunately cash flow and unit count are the two metrics most are taught to chase which leads to buying in the lowest barrier markets lacking any fundamentals that are indicative of creating any true net worth or gains (with limited exceptions). From my observations its usually the individuals offering mentorship or coaching who teach this because its the easiest way to show success and justify their fees despite the students winding up with lousy assets. 

Many also promote their unit count to  raise capital from inexperienced real estate investors who don't know any better and equate unit count to success and track record. How many syndicators or GP's  "manage", "control" or "oversee" hundreds or thousands of units, but don't OWN their portfolios? I believe the worst representation I came across was an investor in my market, Philadelphia who purportedly owned hundreds of units but all I could find were a few small 3-6 unit multi-family buildings. It turned out he was also involved  in a storage unit building with small 3'x5' lockers renting for $100/m.... and those were included in his "unit" count. 

 Exactly. Having 20 units in a D class area where have of the properties are falling apart and the value of the combined portfolio is 1M is not as impressive as 4 units in a solid A class area that have plenty of potential of improving in value and provide solid and stable returns. 

 Not that literal but I get what you are saying over all. The class A will give you a lot less headaches and there are great opportunities and probability for appreciation. However, there are people who can operate in the class D arena so I wouldnt dismiss it. If I had the choice in the two id have to do a serious assessment of both. So much goes into it. I really didnt know you could get 20 units for a million anywhere but oh well. What if gentrification hits that 20 unit? What if I can add so much value I can pushed that cash flow to over $500 a door? The amount of leveraging can be astronomical where I can add higher classes to diversify the portfolio. If you know how to operate in the lower level, depending on the scenario you can come out ahead. I get it in theory though and most cannot effectively operate effectively on the other levels. 

What if you win the lottery? I don't invest in real estate based on what ifs. 

Class A is what it is for a reason just like Class D is. 

 It appears you didnt grasp my point. I dont invest in what ifs either unless I have evaluated the situation. Since I can operate in any class it would be intelligent for me to assess them both as opposed to declaring Id rather have 4 than 20. The 20 could be a much more profitable and professional acquisition. I provided scenarios where one would clearly out perform the other and if you are an experienced investor who knows how to buy and operate, you will be ahead. 

[Mark Cruse]

Syndication doesnt even count for me. Someone telling me they own 100 doors this way makes me question them to some degree. 

I have stock in Microsoft, Starbucks and Disney but I dont present it to people like I own them. I wouldnt go to meet ups saying I own a coffee shot, tech company and amusement park. 

[Dave Meyer]

Quote from @V.G Jason:

Quote from @Steve K.:

We recently downsized/ optimized our portfolio to less units in better locations closer to our primary, and I couldn’t be happier about that. Less headaches, better tenants, more rapid appreciation of rents and more overall profit, less driving… but maybe not as impressive to someone asking how many doors. I do see the utility of determining whether or not someone has experience or not by asking how many doors they have, it’s a quick way to see if someone is an experienced investor or just starting or is hoping to start, but more doors definitely isn’t always better in my experience. 

 This is how you do it in the new higher-rate era. You need to mitigate the capex, the tenant risk by consolidation of units & higher quality placements. And the fundamental part of the investment needs to be a bet on the underlying land value as a scarcity play.

We've been saying that on BP for a year + ad nauseum. Quality over quantity--it's literally the most tokened "term" I have on these forums off a google search.

And yes Dave you've been a CF pusher, through and through. I am not confused, you may have pushed "balance" too or whatever you call it but you've been an CF pusher and the places you push it are in spite of quality. BP's been slow to come around to the right way of doing things, glad they're getting on track. 

 @V.G Jason I feel like we’re in the same team here! Not sure where the cashflow pusher narrative is coming from but I’m definitely aligned with your thinking. I’ve been trying to kill the 1% rule for years and absolutely do not believe cashflow is the be-all end-all of metrics. Check this out! If you’re pushing for quality too, I’m on the same page. 

[JD Martin]

Quote from @Dave Meyer:

Quote from @V.G Jason:

Quote from @Steve K.:

We recently downsized/ optimized our portfolio to less units in better locations closer to our primary, and I couldn’t be happier about that. Less headaches, better tenants, more rapid appreciation of rents and more overall profit, less driving… but maybe not as impressive to someone asking how many doors. I do see the utility of determining whether or not someone has experience or not by asking how many doors they have, it’s a quick way to see if someone is an experienced investor or just starting or is hoping to start, but more doors definitely isn’t always better in my experience. 

 This is how you do it in the new higher-rate era. You need to mitigate the capex, the tenant risk by consolidation of units & higher quality placements. And the fundamental part of the investment needs to be a bet on the underlying land value as a scarcity play.

We've been saying that on BP for a year + ad nauseum. Quality over quantity--it's literally the most tokened "term" I have on these forums off a google search.

And yes Dave you've been a CF pusher, through and through. I am not confused, you may have pushed "balance" too or whatever you call it but you've been an CF pusher and the places you push it are in spite of quality. BP's been slow to come around to the right way of doing things, glad they're getting on track. 

 @V.G Jason I feel like we’re in the same team here! Not sure where the cashflow pusher narrative is coming from but I’m definitely aligned with your thinking. I’ve been trying to kill the 1% rule for years and absolutely do not believe cashflow is the be-all end-all of metrics. Check this out! If you’re pushing for quality too, I’m on the same page. 

I've been on these boards for over a decade, including my lurker days, and there have always been plenty of "quality, not quantity" people on BP. I don't know where this idea has come about that this is some kind of new phenomenon but a lot of my friends on here - @Steve Vaughan, @Russell Brazil, @Jay Hinrichs, @Dave Foster and others have been here at least as long as I have saying the same thing. I don't know why this is, but for some reason REIs seem to think that these ideas are new, or novel, or something they've come up with. RE investing hasn't changed a whole lot in the past 2,000 years. The laws and structures protecting tenants, landlords, property, and financing have changed, but the basic premise of buying and renting is more or less the same back to at least the Romans. 

It may be the case that in the recent past the "noise" seemed to indicate that there were more of one kind than another - cash flow only, appreciation only, refi till you die, etc - but if you look beyond the noise to the signal it's a pretty steady drumbeat straight through. 

[Don Konipol]

For me cash flow is very ATTRACTIVE, BUT, it has to be relative to risk; relative to my lifestyle considerations, and relative to equity movement.  In other words, what am I giving up (if anything) in terms of equity and what risks am I accepting?  A 12% return on an all cash investment seems good, especially if I can “juice” the return by borrowing 50% of that at 6%.  Doesn’t seem so good if my expected increase in property value is an annual MINUS 10%.  Nor if the property has 30% eviction rate.  

So here’s another thought.  Passive investors are basically either accepting (hopefully) a market rate of return, or (hopefully) using analysis to try to pick those deals that are more likely to out perform the market.  Active investors are using sweat equity (in the broadest sense) to (hopefully) best a market rate of return.  Somewhere in there the investor should subtract a “salary” for time and effort, so not as to think he’s made a great investment when in reality he bought himself a job. I’ve bought properties that cashed flowed 30% + on total cost, but they weren’t cash flowing when I purchased them; that kind of cash flow has to be CREATED.  

[Alan Asriants]

Quote from @Mark Cruse:

Quote from @Alan Asriants:

Quote from @Mark Cruse:

Quote from @Alan Asriants:

Quote from @Stuart Udis:

I am happy to see this subject is being discussed and particularly hope those just getting started take the time to read the different viewpoints. Unfortunately cash flow and unit count are the two metrics most are taught to chase which leads to buying in the lowest barrier markets lacking any fundamentals that are indicative of creating any true net worth or gains (with limited exceptions). From my observations its usually the individuals offering mentorship or coaching who teach this because its the easiest way to show success and justify their fees despite the students winding up with lousy assets. 

Many also promote their unit count to  raise capital from inexperienced real estate investors who don't know any better and equate unit count to success and track record. How many syndicators or GP's  "manage", "control" or "oversee" hundreds or thousands of units, but don't OWN their portfolios? I believe the worst representation I came across was an investor in my market, Philadelphia who purportedly owned hundreds of units but all I could find were a few small 3-6 unit multi-family buildings. It turned out he was also involved  in a storage unit building with small 3'x5' lockers renting for $100/m.... and those were included in his "unit" count. 

 Exactly. Having 20 units in a D class area where have of the properties are falling apart and the value of the combined portfolio is 1M is not as impressive as 4 units in a solid A class area that have plenty of potential of improving in value and provide solid and stable returns. 

 Not that literal but I get what you are saying over all. The class A will give you a lot less headaches and there are great opportunities and probability for appreciation. However, there are people who can operate in the class D arena so I wouldnt dismiss it. If I had the choice in the two id have to do a serious assessment of both. So much goes into it. I really didnt know you could get 20 units for a million anywhere but oh well. What if gentrification hits that 20 unit? What if I can add so much value I can pushed that cash flow to over $500 a door? The amount of leveraging can be astronomical where I can add higher classes to diversify the portfolio. If you know how to operate in the lower level, depending on the scenario you can come out ahead. I get it in theory though and most cannot effectively operate effectively on the other levels. 

What if you win the lottery? I don't invest in real estate based on what ifs. 

Class A is what it is for a reason just like Class D is. 

 It appears you didnt grasp my point. I dont invest in what ifs either unless I have evaluated the situation. Since I can operate in any class it would be intelligent for me to assess them both as opposed to declaring Id rather have 4 than 20. The 20 could be a much more profitable and professional acquisition. I provided scenarios where one would clearly out perform the other and if you are an experienced investor who knows how to buy and operate, you will be ahead. 

 I guess that is the main difference. I cannot operate in D class. It would be pretty black and white for me in terms of 4 units in Class A or 20 units in Class D.

Of course if we started to blur the lines and look at similar classes of RE, then it would need to be an analysis. I am always more keen on finding deals with some sort of value add, so likely this is all speculation. Its hard to make a clear point when you expand things further and add in other variables.  

My point was that you mentioned - what if gentrification hits the area. Again, this is like playing the lottery. A lot has to go right for gentrification of that scale to take place. I don't think its fair to bring up a what if, if you don't invest in what ifs.

[Mark Cruse]

Quote from @Alan Asriants:

Quote from @Mark Cruse:

Quote from @Alan Asriants:

Quote from @Mark Cruse:

Quote from @Alan Asriants:

Quote from @Stuart Udis:

I am happy to see this subject is being discussed and particularly hope those just getting started take the time to read the different viewpoints. Unfortunately cash flow and unit count are the two metrics most are taught to chase which leads to buying in the lowest barrier markets lacking any fundamentals that are indicative of creating any true net worth or gains (with limited exceptions). From my observations its usually the individuals offering mentorship or coaching who teach this because its the easiest way to show success and justify their fees despite the students winding up with lousy assets. 

Many also promote their unit count to  raise capital from inexperienced real estate investors who don't know any better and equate unit count to success and track record. How many syndicators or GP's  "manage", "control" or "oversee" hundreds or thousands of units, but don't OWN their portfolios? I believe the worst representation I came across was an investor in my market, Philadelphia who purportedly owned hundreds of units but all I could find were a few small 3-6 unit multi-family buildings. It turned out he was also involved  in a storage unit building with small 3'x5' lockers renting for $100/m.... and those were included in his "unit" count. 

 Exactly. Having 20 units in a D class area where have of the properties are falling apart and the value of the combined portfolio is 1M is not as impressive as 4 units in a solid A class area that have plenty of potential of improving in value and provide solid and stable returns. 

 Not that literal but I get what you are saying over all. The class A will give you a lot less headaches and there are great opportunities and probability for appreciation. However, there are people who can operate in the class D arena so I wouldnt dismiss it. If I had the choice in the two id have to do a serious assessment of both. So much goes into it. I really didnt know you could get 20 units for a million anywhere but oh well. What if gentrification hits that 20 unit? What if I can add so much value I can pushed that cash flow to over $500 a door? The amount of leveraging can be astronomical where I can add higher classes to diversify the portfolio. If you know how to operate in the lower level, depending on the scenario you can come out ahead. I get it in theory though and most cannot effectively operate effectively on the other levels. 

What if you win the lottery? I don't invest in real estate based on what ifs. 

Class A is what it is for a reason just like Class D is. 

 It appears you didnt grasp my point. I dont invest in what ifs either unless I have evaluated the situation. Since I can operate in any class it would be intelligent for me to assess them both as opposed to declaring Id rather have 4 than 20. The 20 could be a much more profitable and professional acquisition. I provided scenarios where one would clearly out perform the other and if you are an experienced investor who knows how to buy and operate, you will be ahead. 

 I guess that is the main difference. I cannot operate in D class. It would be pretty black and white for me in terms of 4 units in Class A or 20 units in Class D.

Of course if we started to blur the lines and look at similar classes of RE, then it would need to be an analysis. I am always more keen on finding deals with some sort of value add, so likely this is all speculation. Its hard to make a clear point when you expand things further and add in other variables.  

My point was that you mentioned - what if gentrification hits the area. Again, this is like playing the lottery. A lot has to go right for gentrification of that scale to take place. I don't think its fair to bring up a what if, if you don't invest in what ifs.

 Yes, and there lies the difference. Believe me I get it. Most cannot operate in the class D space. Many who can tire of it as well. However, if you can it can be lucrative. People should stop acting with a sense of absolute as well. So many live by the mantra of there´s no appreciation in class D. Obviously it would be more complicated than others but my Class C/D portfolio has seen much. Iḿ navigating away from that class but the foundation I built on it has put me in a great light. Also, I didnt have to go around being happy that i was hemorrhaging 2k a month underwater for a class A. When you speak of what ifs, I´ḿ talking about a professional and educated hypothesis. I´ḿ not saying go buy any trap house and wish for gentrification. I would look at the treads and the direction its going for the community and if I´m confident, I can move on it. In terms of adding value; that is something I can control. I can evaluate the deal and assess the degree I can add. All these things together can make a person like me make those 20 units crumble the numbers against those 4. 

[Sam Yin]

Quote from @Alan Asriants:

Quote from @Mark Cruse:

Quote from @Alan Asriants:

Quote from @Mark Cruse:

Quote from @Alan Asriants:

Quote from @Stuart Udis:

I am happy to see this subject is being discussed and particularly hope those just getting started take the time to read the different viewpoints. Unfortunately cash flow and unit count are the two metrics most are taught to chase which leads to buying in the lowest barrier markets lacking any fundamentals that are indicative of creating any true net worth or gains (with limited exceptions). From my observations its usually the individuals offering mentorship or coaching who teach this because its the easiest way to show success and justify their fees despite the students winding up with lousy assets. 

Many also promote their unit count to  raise capital from inexperienced real estate investors who don't know any better and equate unit count to success and track record. How many syndicators or GP's  "manage", "control" or "oversee" hundreds or thousands of units, but don't OWN their portfolios? I believe the worst representation I came across was an investor in my market, Philadelphia who purportedly owned hundreds of units but all I could find were a few small 3-6 unit multi-family buildings. It turned out he was also involved  in a storage unit building with small 3'x5' lockers renting for $100/m.... and those were included in his "unit" count. 

 Exactly. Having 20 units in a D class area where have of the properties are falling apart and the value of the combined portfolio is 1M is not as impressive as 4 units in a solid A class area that have plenty of potential of improving in value and provide solid and stable returns. 

 Not that literal but I get what you are saying over all. The class A will give you a lot less headaches and there are great opportunities and probability for appreciation. However, there are people who can operate in the class D arena so I wouldnt dismiss it. If I had the choice in the two id have to do a serious assessment of both. So much goes into it. I really didnt know you could get 20 units for a million anywhere but oh well. What if gentrification hits that 20 unit? What if I can add so much value I can pushed that cash flow to over $500 a door? The amount of leveraging can be astronomical where I can add higher classes to diversify the portfolio. If you know how to operate in the lower level, depending on the scenario you can come out ahead. I get it in theory though and most cannot effectively operate effectively on the other levels. 

What if you win the lottery? I don't invest in real estate based on what ifs. 

Class A is what it is for a reason just like Class D is. 

 It appears you didnt grasp my point. I dont invest in what ifs either unless I have evaluated the situation. Since I can operate in any class it would be intelligent for me to assess them both as opposed to declaring Id rather have 4 than 20. The 20 could be a much more profitable and professional acquisition. I provided scenarios where one would clearly out perform the other and if you are an experienced investor who knows how to buy and operate, you will be ahead. 

 I guess that is the main difference. I cannot operate in D class. It would be pretty black and white for me in terms of 4 units in Class A or 20 units in Class D.

Of course if we started to blur the lines and look at similar classes of RE, then it would need to be an analysis. I am always more keen on finding deals with some sort of value add, so likely this is all speculation. Its hard to make a clear point when you expand things further and add in other variables.  

My point was that you mentioned - what if gentrification hits the area. Again, this is like playing the lottery. A lot has to go right for gentrification of that scale to take place. I don't think its fair to bring up a what if, if you don't invest in what ifs.

Just like most things in life, if you know, you know... And it's hard to convince people otherwise.

@Alan Asriants I feel you have not/will not try lower quality and will focus on higher quality assets. That's cool and it is good strategy. Keeping your buy box black and white is commendable. But I feel you may have missed out on some positive qualities of lower class areas and higher door counts.

@Mark Cruse I totally understand your philosophy. I agree with your evaluation of quality, quantity, and potential of greater gains by leveraging management experience to maximize profit on greater door count. I am not only convinced, but I KNOW the outcome is astronomically greater if you can operate well.

I have operated in both A, B, C, and D areas. I can tell you that there is more value to C and D areas than you think. It is directly tied to cash flow, which is what the end goal for most of us. I would like to believe that I am not a collector of properties, so having a few trophy class A properties will not do it for me. Appreciation in class A is not going to put food on the table right away. The lower cost to entry in C and D areas can jump strat your journey with higher door count and better leverage. If management skills were equal, you would build value much quicker in a class C and D area because you are able to force appreciate more units for trade into more or better quality quicker.

For reference, without going into exact door count, I traded a few A and B assets for C and D assets to expand door count. It allowed enough cash flow to take on more risks and expand even further. I now have mostly B and C assets, with a light sprinkle of C- and may be a D, that I recently acquired in an area that will surely gentrify quickly. Its an additional influence that will more than likely multiply it's value, above and beyond what I can do with management experience. The move from A and B to C and D using leverage to expand door count allow for FI from a six figure job and six figure pension in just a couple of years. And as Mark stated, you can bring that higher door count in the lower class area from $100 to $500 a month cash flow with the right management systems. 

I'm a father of 3 young kids, and I did not make that decision lightly. But the stability from door count gave me the confidence to make that move. It's not as management intensive as many would make it out to be. It got me to the point where I could take risks in other people's start up ventures, think about a second home, dabble in outside of apartments and into strip malls, etc... It does require some management/operation skills to achieve that level of passivity. When I look back at the time freedom I have gained from leaving the workforce, I keep on kicking myself in the butt for not figuring it out a few decades earlier. Because had I focused solely on quality and closed my buy box in a black and white fashion, I would probably still be forced to keep working even after 10 years of investing. And forget about syndications... With the amount of income from working, I would still be working if I went in to syndications and those door counts are meaningless.

This is a healthy exercise. Discussing door count as a conversation piece has opened the door to much more nuances that is very educational. I hope that people who are following the thread get a good taste of operators from both sides.  Thanks @Dave Meyer for rehashing this conversation piece.

[Sam Yin]

Btw, @Mark Cruse, looks like you are in the MD area? I lived there briefly when I first came the to US. I was there again for a brief stint when I was in the Army.

I will be there later this month. I would love to buy you a cup of coffee and chat if you are still in the area and allow me.

[Peter W.]

Door count is a good way to measure the experience of an investor. Just like years working is a measure of experience for a salaryman. That being said someone with 5 years experience may be a more effective than someone with 20 just like someone with 5 doors might be outperforming someone with 20 doors, but it does give you a reading to the range of problems they have likely seen before.