Question on Building a Small SFR Portfolio

[Hakob G.]

I was hoping some of the more experienced investors would shed some light on the risks and benefits of buying 5-6 units in the same city.

What are some of the benefits from having scale in one city? Are you able to negotiate better terms with your property managers if you have 6 units in the same city?

Alternatively, isn't it better to diversify and purchase 1 or 2 units in 3 different cities to reduce risk in case there is an economic downturn in one city, or no property value appreciation?

Just wanted to see how the rest of you have thought about these issues. Also, please list any other key benefits or risk I'm missing.

Thank you!

[Ann Bellamy]

I'm with @Elizabeth Colegrove 

Here are just a few of the advantages I've gained by having rentals in one area:

1.  Local market knowledge of the rents/prices

2.  Familiarity with the major employers and hiring trends

3.  Contractors want to work for you when you have multiple properties, same with handyman.

4.  Vendor discounts, ie hardware store, lumber yard

5.  The appliance store knows me by name and it eases the process and purchase if I need used appliances

6.  Becoming known for being a good landlord therefore getting applicant referrals from my other tenants

7.  Knowing the local realtors well enough that when I need the scoop on a particular street or neighborhood, I can pick up the phone and get the inside story.  Eases the process of tenant references also.

Here is a story that may not relate to having multiple properties in one area, but nontheless relates to having relationships in the town:  I bought a rental that had a finished attic (third floor) which had been used as bedrooms.  Mindful of the risk if tenants used them as bedrooms but they were not in legal compliance to be used as such, I had the fire department inspect the unit to advise me what I needed to provide for fire escape purposes.  The Captain said:  "You don't want to get into putting up an outside fire escape" and he proceeded to advise me that the height was low enough to be used as bedrooms and that he had a truck that could easily reach the windows.  He suggested that for additional peace of mind and safety for the residents, that I could voluntarily install the under-the-window ladders that mounted into the wall.  I agreed, and he confirmed this to me in email.  

Having said all of this, I have just recently purchased my first SFR in a Southern market for diversification purposes, but will, if all goes well, concentrate on that area for a while and not jump around.