I am a new investor and am looking to get into Real Estate as a way to grow my savings. I currently have $200k that I can use to invest.
I have looked into SFH and MFH, and both have their pros and cons. I haven't looked into apartments, but I have heard that they can have a great ROI. I'm a little hesitant to even look though, because of my lack of experience.
Ultimately, I want the option with the best long-term cashflow. I am willing to put in the work at the beginning to make it mostly passive after the first few years of setup. Should I look into apartments? Stick to SFH or MFH? Let me know your thoughts.
The decision on the strategy is in your hands. However to give you my perspective, when I was deciding whether to take SFH vs MFH route, I realized that the economy of scale plays a huge factor for me. Let me explain. Let's say you're buying 5 doors (5 SFH vs 5 unit building). Do you prefer to have 5 closings or one, do you want to replace 5 roofs or one larger one, do you want to pay your attorney five times for closing or pay one fee, last but not least: when each of your SFH is empty, you have 100% vacancy; when one of five units is vacant, you only have 20% vacancy. This logic helped me make a decision.
Here's another post describing why I chose MFH:
@Tyler D'Alessandro answer is entirely dependent upon a multitude of questions. How much cash flow? What's your market like? Are you willing to invest out of state? Are you wanting to BRRRR, or just buy and hold?
I live in Charlotte, NC and am looking for small multi in Gastonia, a little west of town. Charlotte metro area is terrible for multifamily houses, and even SFH buy and hold properties that cash flow well are hard to find.
You have 2 options in my opinion-be flexible by letting your current market dictate your strategy, or be flexible by letting your strategy dictate your market. All depends what’s important to you
The decision on the strategy is in your hands. However to give you my perspective, when I was deciding whether to take SFH vs MFH route, I realized that the economy of scale plays a huge factor for me. Let me explain. Let's say you're buying 5 doors (5 SFH vs 5 unit building). Do you prefer to have 5 closings or one, do you want to replace 5 roofs or one larger one, do you want to pay your attorney five times for closing or pay one fee, last but not least: when each of your SFH is empty, you have 100% vacancy; when one of five units is vacant, you only have 20% vacancy. This logic helped me make a decision.
Here's another post describing why I chose MFH:
@Tyler D'Alessandro answer is entirely dependent upon a multitude of questions. How much cash flow? What's your market like? Are you willing to invest out of state? Are you wanting to BRRRR, or just buy and hold?
I live in Charlotte, NC and am looking for small multi in Gastonia, a little west of town. Charlotte metro area is terrible for multifamily houses, and even SFH buy and hold properties that cash flow well are hard to find.
You have 2 options in my opinion-be flexible by letting your current market dictate your strategy, or be flexible by letting your strategy dictate your market. All depends what’s important to you
I'm investing out of state. My primary concern is getting the best deal possible.
The decision on the strategy is in your hands. However to give you my perspective, when I was deciding whether to take SFH vs MFH route, I realized that the economy of scale plays a huge factor for me. Let me explain. Let's say you're buying 5 doors (5 SFH vs 5 unit building). Do you prefer to have 5 closings or one, do you want to replace 5 roofs or one larger one, do you want to pay your attorney five times for closing or pay one fee, last but not least: when each of your SFH is empty, you have 100% vacancy; when one of five units is vacant, you only have 20% vacancy. This logic helped me make a decision.
Here's another post describing why I chose MFH:
Yeah, this all makes sense to me. From a strict numbers perspective, do you get better returns from multifamily?
@Tyler D'Alessandro
The “best deal” is wildly subjective to countless factors, and dependent on your goals (must be more specific than long term cash flow). What does that mean, both in terms of dollars and time?
Are you looking to supplement your income with a few hundred $$ in rental income? Are you looking to accumulate $xxx,xxx in 20 years to put your kid through college? Are you looking for enough cash flow to retire? What’s your desired timetable for each of these?
The answer to each of these questions affects your strategy and therefore affects what you should do with your $200k. For me, my goal is to have $10k in monthly cash flow by November 2028. For now, my plan is to use a mix between multifamily and partnered BRRRRs in Charlotte and Gastonia, NC. I am looking for multifamily deals with enough cash flow to pay them off in 6-8 years to help get me to $10k, and in rehabs I’m looking to leave no more than $10k in any deal with a minimum COCROI threshold on each deal.
My strategy is developed entirely around a specific, quantifiable goal with an established deadline. If that goal changes, my strategy will change.
Before deciding on what is the next investment for you, I would recommend you instead invest some serious time in establishing clearly defined goals.
@Tyler D., I think whether or not you get greater returns from multi- vs. single-family homes depends on location and property class. I own single families and duplexes in the St. Louis area. I used to own larger multi-family properties, but they were C-class properties in a rougher part of town. I got an awesome deal on them, and on paper the cash-flow looked great. Unfortunately, there was high turnover and I was constantly trying to fill vacancies. On top of that, I had some tenants who wouldn’t pay and I had to take to court to garnish their wages. In comparison, I’ve had the same, mostly reliable tenants for the past three years in my duplexes and single families. For me, the sweet spot between between scales of efficiency and quality tenants has been in duplexes. Good luck in your investments!
@Tyler D'Alessandro
The “best deal” is wildly subjective to countless factors, and dependent on your goals (must be more specific than long term cash flow). What does that mean, both in terms of dollars and time?
I want the option that has the highest return. If buying a 5 unit apartment returns 20% more than 5 single family homes, I want the apartment. If the opposite is true, I want the SFHs. This is keeping REI as passive as possible - I'm not interested in self-managing or flipping, etc.
Are you looking to supplement your income with a few hundred $$ in rental income? Are you looking to accumulate $xxx,xxx in 20 years to put your kid through college? Are you looking for enough cash flow to retire? What’s your desired timetable for each of these?
As much as I can get. I'm not going to put limits on anything, but at the minimum, $3k/ month in cashflow from PM'd properties. Again, I'm not going to give you a strict timetable because I'm not going to put limits on this, but it should take no more than 3 years.
The answer to each of these questions affects your strategy and therefore affects what you should do with your $200k. For me, my goal is to have $10k in monthly cash flow by November 2028. For now, my plan is to use a mix between multifamily and partnered BRRRRs in Charlotte and Gastonia, NC. I am looking for multifamily deals with enough cash flow to pay them off in 6-8 years to help get me to $10k, and in rehabs I’m looking to leave no more than $10k in any deal with a minimum COCROI threshold on each deal.
Ok. Goals are nice, but what I'm asking about are the methods used to achieve those goals. How did you decide on multifamily and BRRRRs? Why did you choose to invest in NC? This is the meat of the topic, and what I want more info on.
@Tyler D., I think whether or not you get greater returns from multi- vs. single-family homes depends on location and property class.
If you are open to all locations, which is better? Say we're talking about B class and up.
@Tyler D'Alessandro yes you do
@Tyler D'Alessandro yes you do
...What?
I would say be flexible.... every property type has pros and cons. Location and market conditions will dictate. But most importantly figure out what kind of investor you are, your risk tolerance and the demographic you want to rent to.
For me, I personally chose to invest where I know. Im in Los Angeles... where everything is super expensive. I have a mix of SFRs and MFR but prefer SFRs over MFs where Im investing ... due to Rent Control on MFs and the type of tenants I get.
In L.A, cashflowing BRRRR is not easy to pull off and rarity without any money down. That said however, L.A. has incredible appreciation and rents.... so I dont mind dropping 25% downpayment to breakeven or slight negative on cashflow on the first couple of years. One SFR i bought less than 10yrs ago for $415K is now worth $1.5M... and rents easily with a cashflow of $4500. I have a 4plex I bought 4yrs ago that are under Rent Control where I inherited the tenants paying way under market rent finally started cashflowing this year with $2700 because 2 tenants left. I found that my SFRs cashflow way sooner and appreciate faster than my multi due to rent control... and SFRs are more in demand where I invest and the tenants are less of a headache. They even take care of the house better than the tenants in our 4unit who seem to be more high maintenance. My wife and I manage our own properties which helps us understand where we invest. So know your market... and see which works best for you.
@Tyler D'Alessandro something to keep in mind is that it is very difficult to make single family homes truely passive. Just by nature of having to source new deals on your own requires a tremendous amount of work. In addition, you’ll likely still have to think about filling vacancy and other operational functions of managing single family properties.
If you’re an accredited investor, you have access to fantastic multi family deal flow which is truely passive if you pick a sponsor you trust.
@Tyler D'Alessandro something to keep in mind is that it is very difficult to make single family homes truely passive. Just by nature of having to source new deals on your own requires a tremendous amount of work. In addition, you’ll likely still have to think about filling vacancy and other operational functions of managing single family properties.
If you’re an accredited investor, you have access to fantastic multi family deal flow which is truely passive if you pick a sponsor you trust.
Interesting. How do you become accredited/ gain access to these deals?
@Tyler D'Alessandro it’s not something you get certified for, you just have to meet the income requirement or net worth retirement outlined here: https://www.investopedia.com/terms/a/accreditedinvestor.asp
Getting access to deals requires doing independent research to identify sponsors that are investing along theses that you believe in (ex. Value add class B) and have enough experience that you trust their decision making. I’ll frequently comb lists of the largest owners of multi family assets to find investors that I trust. Generally speaking, the best investors are among the quieter because they have less of a need to find new sources of capital (they have existing investor bases that fund new asset acquisitions)
Just something to consider.
Mostly everyone I know in the industry came from SFH and transitioned to MFH. Almost everyone said they wish they started off MFH.
As others have mentioned, MFR presents far more benefits than your traditional SFR from the Cashflow, Appreciation, Leverage, Amortization that gives you the better probability of accumulating generational wealth to pass down to your kids.
I would also mention to start taking action and analyzing deals deals so you can get a good feel of the your "market specific" returns. The BP calculators is a great resource to get started. Feel free to message me for any additional questions
If you have minimal experience, I would go with 4plexes. Biggest unit size you can get while still getting a long-term (30 years) fixed interest rate debt. If you go 5 or more units, the debt is shorter-term and/or the interest rates aren't fixed. Cash flow wise, the most doors under one roof, the better (generally).