Anyone just stick to SFH instead of going to MFH?

[Jack B.]

The BS I deal with trying to get MFH (proformas where someone is trying to get you to pay an extra million off of imaginary numbers), unresponsive brokers or responsive ones who just try to shove whatever crap deal they think they can pawn off on you down your throat, etc.

Kris Krohn built a huge empire on SFH, bought below the median. I'm getting pretty close to 10 homes, as each time I sell one I use the proceeds to buy two, etc.

This strategy seems to be working better for me, and I'm hesitant at dealing with MFH at this point. Just because one does well in SFH doesn't mean they will do well with MFH.

[Llewelyn A.]

@Jack B.

I'm not sure we are or not are on the same page.

MFH prices are determined by Market Cap Rates which are determined by similar buildings in similar areas.

Of course Market Cap Rates don't stay the same, they are MARKET Cap Rates.

I'm not sure if I didn't explain myself correctly or if it's a misinterpretation.

BUT, to give an example, if a building was priced at $1 Million and has an NOI of $100k, the Cap Rate at Purchase is $100k/$1 Million = 10%.

In the Future, let's say there are 3 similar buildings, all with the same 10% Cap Rate, but your NOI is now $200k. You are using the formula to calculate FMV = NOI/Cap Rate or FMV = $200k/10% = $2 Million.

Let's say we are in the year 2020, 3 years in the future.

You want to sell your property. You analyze the nearest 3 similar buildings in your neighborhood. You determine that these similar buildings are at a 7% Cap Rate. Your NOI is at $200k.

You then use the formula FMV=NOI/Cap Rate = FMV = $200k / 7% = $2.86 Million.

So, now, in 2020, because similar Cap Rates are at 7% and your NOI increased to $200k, you can sell the MFH at $2.86 Million.

I never said anything about controlling the Cap Rate. You buy at a particular Cap Rate, but the control of the Future Cap Rate is determined by the Market, which is why I said "Market Cap Rate." Of course if I said that a Cap Rate is a "Market Cap Rate" it is controlled not by me but by the Market in the future.

OK... I beat this all to death.

Even the NOI can be beyond your control. After all, you can't determine how quickly Property Taxes and Insurance can be raised.

Imagine what is going to happen to insurance once a Major Hurricane hits and does tons of damage to the State? Insurance can spike, causing your NOI to fall dramatically.

Anyway... hopefully I made it clear this time! :)