why single family and not multi family?

Question

hey guys, I've been using the search tool trying to find answers on a few questions i have about where everyone is investing and i dont see much on multifamily apartment buildings and am seeing most of you go towards single family homes. is money a main factor for not buying bigger properties with more units or am i missing something. BTW, Im an investor in NJ and am looking to sell my 15 unit office building and looking to bring my money to florida for multi family apartment buildings but I've just seen so many mixed reviews from you guys.

Andrew Johnson · Answer

@Rief Hodzic Just observing what's talked about in the forums I'd say price is the overwhelming factor.  There's a lot of chatter about $30K homes and $50K homes and when you're talking about 20% down, scraped together $6K or $10K is much easier (especially for someone getting into real estate for the first time).  You also don't have to deal with full-recourse loans, 20 or 25 year amortization payments, 5-year fixed rates with a balloon, etc.  It's arguable just a different ballgame when you hit the 5+ unit commercial mark.  That's speaking from the perspective of someone who has a couple of them.

However, the one major advantage that nobody has mentioned yet is liquidity.  When you're selling a 5+ unit commercial property you're ONLY able to sell to investors.  There's no house hacking, rarely will you find someone that buys a complex and lives in a unit, etc.  Compare than to an SFR, if you have to sell it you can market to investors and owner occupiers.  It's not an infinitely wider net, but it dang near close.  Real estate is an illiquid asset to being with but commercial multifamily properties are that much more illiquid.

Food for thought on tax day!

Brian Nordman · Answer

This is my own insight but I think that if you ask most people they would say they would prefer to do multi family. For reasons such as more tenants to cover the mortgage so there would be lower risk and also the returns are generally higher with multi units. I think the reason you simply see more people talking about SFH is simply because there are way more SFH's out there compared to multi units. People don't want to sit around and wait for that multi unit to pop up so they go ahead and take what is available. Again this is my own insight but it was a good question to ask.

Corina Eufinger · Answer

SFR's are seen as hands off investments once a tenant is in.  Tenant pays all bills, handles all the lawn care and snow removal.  They do tend to stay longer than a year on average.  Cash flow can be good when its occupied but when its not, your income statement kind of stinks.

Multi-families present multiple sources of income rather than just one tenant.  There tend to be common bills (unless you find seemingly rare duplex where utilities are all metered separately), will require coordination of services (lawn mowing, snow removal, common area cleaning, etc), then there is tenant to tenant issues.  Multiple rent income helps cover the bills even if one is vacant, capital expenditures like a roof are covering more than 1 unit (rather than replacing 4 roofs, you have only 1), POTENTIALLY more cash flow per month.  But it is definitely a more hands on investment (or would benefit more from a property manager than a SFH).

Rief Hodzic · Answer

i know very little about florida i just see properties that "make sense" financially and then i start doing my research. i guess i have to find the patterns of where people are moving to in the state and where people are enjoying ect. if you have any insight i would appreciate it.

Account Closed · Answer

@Rief Hodzic have you ever thought of mobile home parks ? There are plenty of them and they can be even more lucrative than multi units apartments from what I hear ..There is a section or podcast here on Bp about investing in them .. Im sure someone can chime in and explain what I am trying to say .. anyway .. I am in Central Florida area so if you need any advice on area's just drop me a note .. I wish you the very best on your tough decision ..

God Speed,

Michael

Brian Garrett · Answer

Very good points made here!

Rief Hodzic · Answer

i dont like the appreciation game as i dont want the market or anything for that matter to dictate whether or not my initial investment will be worth anything. im doing this to put cash in my pocket. Appreciation would be nice but not really necessary for me. im looking to buy quality buildings and hold them.

Rief Hodzic · Answer

Ive been looking all over especially where i can find cap rates above 8% but to name a few ive been looking in st pete, st augustine, west tampa, clearwater, daytona beach and surrounding areas. im open to anything in a good school district and im looking for nicer buildings to rent to young families. ive also expanded my search to the carolinas. if anyone has any trusted sources in those areas any help would be greatly appreciated.

Thomas S. · Answer

I believe the opposite to be the case most will advise investing in multi units. SFH investing is geared more to the appreciation investors since few SFH rentals actually cash flow long term. SFH is higher risk than multi due to the numbers.

Brian Garrett · Answer

Where in Florida will you be looking for MFR's?

why single family and not multi family?

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