Is # of doors a better goal than portfolio value?

Question

I often hear things like:

" I hope to get to 100 doors by next year"

or

"I went from 7 doors to 50 in 12 months"

Don't get me wrong, those are great goals and accomplishments.  But doesn't it make more sense to view portfolio size in terms of value?  Does the number of doors even matter at all?

For example, someone can own 7 high-end single family homes as fully furnished executive rentals in major metros that command an strong premium above market rents.  And that portfolio could be worth $5mm.

Or someone can own a class B, 25-unit building worth $3mm.

Both are great properties.  Both are different strategies.  But who cares how many doors?

Can someone please help me understand what I'm missing?

Omar Khan · Answer

@Jason T. You are not missing anything. Most folks tend to use doors as a shorthand for portfolio size. IMO, 50 Class A doors are better than 200 Class D doors (even if the Class A portfolio size is smaller).

As @Jay Hinrichs has pointed out, you have to dig deeper to find out the net wealth position. Someone could have 100 doors but be up to their eyeballs in debt and extremely over leveraged. Another person could have 20 free and clear.

A lot of this boils down to financial sophistication and perspective. You don't see too many uber-wealth folks on these forums. There are a few successful people who we all aspire to be like and who's replies on the forums provide greater insight. Everyone else is just in the capital accumulation phase.

Steve Miller · Answer

Using "number of doors" as a metric is pretty useless in and of itself, because it provides no context. It would be like someone saying "I want to own 10,000 shares of stock by 2021". Shares of what? At what price? It's a useless metric. Part of what makes real estate investing fulfilling is that it is a tangible asset - you can go see what you are investing in any time you wish. And for that reason, I understand the inclination to describe one's investments that way. It's fun to say that you own 10, 100 or 1000 units. But it is completely irrelevant without context.

I'm a firm believer that anybody that is in this for the long haul needs to have a business plan with specific metrics they can track on both a monthly and annual basis. For buy and hold, it's pretty simple: capital deployed and return on said capital. There are plenty of metrics for this, some better than others: ROI, ROE, Cash-on-cash return. None of which have anything to do with the number of units owned. If I'm deploying a certain amount of capital to my business, I ultimately want as few units as possible given the same return to reduce overall complexity. Personally, I tend to gravitate towards larger units (3BR and 4BR) just so I can have less tenants with the same capital deployed.

Jay Hinrichs · Answer

your not missing anything or someone can own 10 properties free and clear and get the same cash flow and net worth and someone who is leveraged to the eye balls..

I am a free and clear proponent but very much in the minority on BP..

Is # of doors a better goal than portfolio value?

Most Popular Reply