Denver market Multifamily or single family

Rental Property Investor · Denver, CO · Member since 2019 · 24 posts · 11 votes

Hi all, i’ve got about 200k in equity in my newest property and I’m wondering everyone’s thoughts on taking out the equity and getting a multifamily (here in Denver 550-750) or buying a single family home (290-320)

My portfolio is my single family I live in, this new property which the main house is rented out per room and making 1400 more than the mortgage a month and an apartment making 100 more than the HELOC payment.

Thanks!

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Steve K.

Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes

I'd go multifamily. Single families only really cash flow here if you're renting by the room or have some other alternative strategy. Renting by the room is a great strategy to get started for somebody working with limited capital, but too management-intensive to scale or continue longterm IMO so I'd jump to multifamily as soon as you can. It's still possible, although not easy, to find a decent 3-4 unit building in the 550-750 range. I'd find one in the best area possible that needs some work, put some sweat-equity in and increase rents to force appreciation and create cash flow. That's what I've been doing and it's been working well. It will be hard to have much positive cash flow initially from a multifamily in that price range unless you find a great deal or can employ a value add strategy. Or partner with somebody on something bigger. There are a lot more options that have immediate positive cashflow in the $1M+ range in the Denver MF market. $1-3Mish seems to be the sweet spot where it's a little less crowded than the low-end of the market but still too small for institutional investors.

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Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
6y
I'd go multifamily. Single families only really cash flow here if you're renting by the room or have some other alternative strategy. Renting by the room is a great strategy to get started for somebody working with limited capital, but too management-intensive to scale or continue longterm IMO so I'd jump to multifamily as soon as you can. It's still possible, although not easy, to find a decent 3-4 unit building in the 550-750 range. I'd find one in the best area possible that needs some work, put some sweat-equity in and increase rents to force appreciation and create cash flow. That's what I've been doing and it's been working well. It will be hard to have much positive cash flow initially from a multifamily in that price range unless you find a great deal or can employ a value add strategy. Or partner with somebody on something bigger. There are a lot more options that have immediate positive cashflow in the $1M+ range in the Denver MF market. $1-3Mish seems to be the sweet spot where it's a little less crowded than the low-end of the market but still too small for institutional investors.
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Jerome Myers
Rental Property Investor · Greensboro, NC · Member since 2019 · 24 posts · 5 votes
6y
@Adam Parker i would only do multifamily if you gave done some form of education prior to starting. Mistakes become very costly with them and there are fewer exits.
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Ronan DonnellyPro Member
Investor · New York City, NY · Member since 2012 · 332 posts · 385 votes
6y
Hi @Adam Parker, I prefer multifamily for the following reasons
1) There are economies of scale. For any asset purchase you have to find a deal, due diligence it, negotiate the sale, arrange financing etc. It isn’t 10x the work to buy a 10-unit versus a single family home
2) Intrinsic valuation - commercial multifamily is typically valued based of the NOI and prevailing cap rates in the area. This gives you a little more control over the value of the asset versus single family homes that are valued off comps
3) Rental income with a single family home is digital and vacancies can really impact returns. With multi-family, you have multiple income streams and it’s unlikely that all will stop at once.
Another signal to pay attention to is that there are numerous examples of people on BP (myself included) who started with single family homes but have subsequently moved on to larger commercial deals, often via syndicates. Good luck!
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Craig CurelopBusiness Member
Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Adam Parker - I am going to be the contrarian here and say go with Single Family. Like @Steve K. mentioned, you can rent by the room. With this strategy you get the benefits of investing in Denver, high cash flow, and high likelihood for appreciation. Whereas on the multi-family, your cash on cash returns are going to pretty low as you will be putting more money down for less cash flow.
For example, a 5-bed, 3-bath for single family home for $400,000 may rent out for $2,500 in the outskirts of Denver. However, with the rent by the room strategy, you'll likely get upwards of $3,700 to $3,800 in rent. That's over $1,000 more.... A MONTH! At least that's what I am getting and seeing with people that I work with.
The downside to this single family strategy is that it is tougher to scale without a doubt. However, if you get the right team members and systems in place, it can be done. Not to mention, if your goal is $5,000 in passive cash flow in the Denver market, it'll take you 5-7 deals to get there. Whereas it will take you at least 10 in the small multi-family space.
Hope this helps! Happy to chat more on it if you need.
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James CarlsonBusiness Member
Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
6y
@Adam Parker
There's no "right" answer here. There's the numbers but also your comfort level with spending big money, your desire for work vs. desire for a hands-off approach, etc. With all real estate decisions, it's a weighing of priorities. It sounds like you've had great success with your rent-by-the-room model in Denver. How much work is that for you to manage? I mean, $1400 cash flow sounds pretty good to me. But it's also more work to scale.
(I would ask where you're seeing SFH in the 290s in the Denver area. You might be able to find them but not with enough bedrooms to really kill it with rent-by-the-room.)
Taking a step back, you're in a good position and however you use your money will likely be a great step forward in your portfolio. I wish you luck!
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James Carlson Real Estate
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