Why Not Apartment Complexes???

[Jesse Chunn]

I am new, have not bought my first property yet, but I have been a "businessman" for 20 years. I have a higher than average tolerance for risk, so long as it is "calculated" risk. For the sake of this question, assume that I have good credit and $500k under my mattress (not really under my mattress, but available).

So, the question is "Why not apartment complexes?" I have looked at (analyzed) a few dozen potential single-family deals, and at least 15% of them were worthy of further investigation. BUT, I would have to go through the whole process of: Analysis, Loan, Close, Rehab, Rent.... for each one, about 100 times (literally) to get to my goal of approximately 20k in passive monthly revenue, and my properties would be scattered all over the place, and it would take forever (many years by my estimation).

On the other hand, I see that there are apartment complexes out there to be had with (for example) 70 units, $90k net operating income, that can be had for a down payment and rehab cost of maybe $500k. Obviously the reality is all over the map, but I am finding this to be doable (on paper at least).

Now, I am not an expert, but it seems that almost all "Make Money in Real Estate" books, and this website, are geared towards folks that don't have $500k burning a hole in their pockets... so there's not a lot of conversation on this topic... Am I naïve to think I could pull something like this off? I like to think big and go big, but I also try to be smart about it and avoid stupid mistakes. Would it be a stupid mistake for me to go down the path of 70+ unit apartment complexes right out of the gate?

[David Faulkner]

I invest in single family homes, and while I may at some point venture into multis, rather than answering why not multis, I'll point out some advantages to SFRs:

• Generally a better tenant class ... my tenants tend to be stable families that move in, take good care of the place, pay rent on time, and rarely move.
• If/when I do sell, I can sell to a retail buyer, not another investor. Retail investors don't need to make a profit, they don't care if it will cash flow, they only care that it looks nice and is in a nice neighborhood and if you can give them that, they'll pay top dollar. Also, for the same reason they are more liquid than multis and I can sell them faster if need be.
• When I buy, there are more properties to choose from. This is especially true if you are looking for value add via distressed properties or foreclosures. These do exist with multis, but much more common with SFRs. Again, retail owners vs investors tend to mismanage their property much more frequently.
• Financing: you can't beat a 30 year fixed mortgage, sub 4% interest rate. most commercial loans have much higher rates and balloon payments after 5 or 10 years rather than being fixed for the life of the loan. Warren Buffet said that a 30 year fixed mortgage on a quality piece of RE is one of the best ways to short the dollar, and I agree!
• Appreciation in both rent and price tends to be better with SFRs, since there tends to be a greater demand for them and a wider buyer and renter pool both.
• For my market, Multi units are actually looking bubble-like to me right now ... while SFRs is still an extremely hot market, it is not as crazy as multis in my market IMO.
• I agree with you that I would not want to do SFRs in a market where I would need 100+ to make serious cash flow. In my market it takes significantly fewer units than that. They are not "spread out all over the place" either, as I farm a few cities near me and concentrate my holdings there.