Is it worth investing in high priced multi-families?

Question

I agree that buying low is a key, however prices of multi-families in my area are rising very fast. There are specific towns/cities we are looking at around where we live but houses range from 680k-1.4mil and after doing the numbers, we're at break even or netting around 1k a month. Is it better to invest locally in these properties and tie up funds in higher priced investment properties or go out in distance 15+miles to less desirable locations to find less expensive homes with better monthly profit?

I'm interested in hearing differing opinions.

Thanks

I'm interested in hearing differing opinions.

Thanks

Leslie Pappas · Answer

Good topic! I live in Silicon Valley, and I'm an investment advisor who specializes in real estate.  I can tell you what people here have done to set themselves up for retirement.  There are two types of investors here:

1. Buy or inherit and hold for a long time, then cash out and redeploy equity into potentially higher cash flowing properties or other investments.

2. Buy or inherit and hold all their lives while working the properties for income.

I've seen teachers, firemen, software engineers and all sorts of people utilize both strategies successfully.  One way or another, however, the investors must work to pay down loans, increase rents and decrease expenses wherever possible.  One way or another, they are building their net worth.

Building net worth is how you may possibly retire with fewer worries.  If your retirement utterly depends on having adequate cash flow from your properties, any downturns will cripple you.  AND you must maintain adequate reserves to take care of the disasters that may happen.

I think you've been given some good advice in this thread. Most of my clients fall into the first group above. If you are or become an accredited investor, you can buy into institutional grade $50-125M projects with as little as $100,000 and diversify. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse. This is the world of Delaware Statutory Trusts.

Colleen F. · Answer

I see you are in Waltham, your title refers to MF but you post talks about houses at 680-1.2 range so I am not sure how many units you are talking about for that price. SF median in that area I think is about 450. I live in MA but invest in RI however we've looked so I know there are quite a few options within 40 min of you that can turn a profit. They aren't higher end though but you don't have to go to really poor properties to do it either. For the most part the high end homes/ small apartment bldgs are not going to turn a rental profit unless you get a deal buying them so it isn't worth it if you are in it for income only if you are looking for appreciation.

Targeting something out of your home town but a type of property/area that you feel comfortable with is key if you can't find that deal locally. Remember you aren't living there you are investing. The property should meet the local renters need and your goals. Can you give a better handle on what type of property you are talking about SF, 3-6 unit MF , 7-20 MF, 20-50 MF, or more?

Targeting something out of your home town but a type of property/area that you feel comfortable with is key if you can't find that deal locally.  Remember you aren't living there you are investing.  The property should meet the local renters need and your goals. Can you give a better handle on what type of property you are talking about SF,  3-6 unit MF , 7-20 MF,   20-50 MF, or more?

Alex Schafler III · Answer

While I agree with @Natalia Collini that people will always need a place to live, especially if your property is desirable, I think you should use caution when investing in a less desirable area. There are just a lot more things that you would have to consider when doing so, like figuring out whether the tenants in your particular area are used to paying for their own utilities or having the landlord foot the bill.

I know it's not much information to provide (I'm probably greener than you), but I hope it helps!

David Thompson · Answer

Alissia,

Maybe you need to pool your funds w/other investors and buy big properties like 300 unit apartments.  There is no reason you have to do it all yourself.  Find solid and experienced partners and invest passively in these opportunities and reach your retirement goals w/o spending your weekends managing properties after a long work week.  There's another way.  We love multi-family and finding value add opportunities in parts of the country that are growing much faster than MA due to jobs / population trends, then getting experienced partners that find value add large MF apts and be part of the investment group.  Continue to learn and grow but don't discount the ultimate purpose is to enjoy passive income, the path can be any, but why need to do yourself, stub your toe, lose money potentially while you learn.  Learn from others, invest w/them, then decide if you want to be more active down the road.  If you want to explore syndication in MF, reach out to me for some further discussion on how to get started.

Dave

Natalia Collini · Answer

Are you talking about 2-4 unit buildings or 5+?

In that situation I would go out in distance. No matter where you invest people need to live and if you have desirable properties then you will have tenants. If you begin investing in an area that is less desirable and with better deals then you will be able to build wealth faster. After that you can upgrade your properties into your higher priced area faster and with more wealth and equity than if you had started out there.

Hope that helps and hope you have a wonderful weekend! :-)

Alissia A. · Answer

Thank you all for your thoughtful  advice. The particular areas I'm looking in are in my town and in the 20 min surrounding, 2-4 families. These are areas that are closer to Boston, bus line, and colleges. However with such high prices, and hearing about "you but smart when you buy low", I'm  wondering if it's not such a smart move to buy MF close by yielding lower return.

My goals are both, to be an investor to create immediate income as well as hold multi families for retirement. I'm open to learn about the different opportunities .

Thanks

Is it worth investing in high priced multi-families?

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