Invest Now or Grow Capital?

Question

Hey Everyone! I am new to BP. I purchased my first investment (rental) property in December 2020 and my second in April 2021. Both properties are single family homes in Jefferson City, MO (the capital city). I am closing on a house next month as a partnered flip (estimated 6 month turnaround). Here is my dilemma: I have an opportunity to purchase a third rental property and I have the capital to make the deal happen, however, I have also considered holding onto the funds and combining it with the profit from the flip to be able to afford a multifamily property. In my area, multi family's are being sold at a premium. Every fourplex I have analyzed only cashflows double the amount of the single family properties I have been finding. I want multi family properties but it seems like I would have to compromise on cashflow. I am sure there are better deals or better ways to make a property cashflow - I am learning. Should I hold onto my capital for something bigger and better, or keep snatching up the cheap single family homes that I keep finding?

Denny Cash · Answer

@John Warren and @Austin Steed I appreciate the feedback. After making this post, I did a drive by to a potential MF property to BRRR (it was too far gone for my comfort). By happenstance, I made a wrong turn and found a duplex FSBO. Scheduled a showing and two days later came under contract! I know it is only one additional unit compared to a single family, however, this was the first MF property that cashflows near double the amount of the single family homes I have been finding. Closing in three weeks!

Denny Cash · Answer

@Jonathan Greene I appreciate the insight. Thankfully the bigger ticket items have been updated at both rental properties. The only thing I foresee failing unexpectedly in the near future are the kitchen appliances. I budget CapEx at 10% and 5% for repairs and maintenance. After the initial post, I found and came under contract with a duplex that's FSBO. This property will require a bit more work compared to my other two rentals. I am going to be keeping in mind the what you said about leaving each part of my investment foundation as a solid block before building. This one will take awhile to become solid. The cashflow is strong, so hopefully the updates/repairs are speedy. Thank you for the perspective.

Austin Steed · Answer

@Denny Cash I like the multi family play too. In columbus Oh I try and focus on Multi family town homes. Flats seem to have higher turns and expense ratios. I'm with @John Warren here too. I've found generally MF properties out perform the returns compared to single family. Not saying it can't be done.. I mean deals can be found anywhere. Maybe hold off and keep looking for a multi family with better returns.

Jenna Bannister · Answer

I️ flip land for a living. I’m going for explosive growth this year (year 3 in land) and ramped up the staff to handle the volume. I’m looking for investors for when I’ve spent all my cash on deals. I️ can pay much higher than average returns and it’s real estate backed. I️ sold my rentals so I️ didn't have to deal with tenants and toilets. You wouldn’t have to do any work. You’d basically be the bank, which is where all the money is anyway. I️ was Looking at other posts and thought you might be interested in This too. Feel free to reach out for more info.

Denny Cash · Answer

@Wale Lawal Thank you!

Wale Lawal · Answer

Welcome to the BP!

Jonathan Greene · Answer

With the limited information, it seems like you might be moving too quickly to take on that fourth property. I don't think any investor should be moving from 1 to 2, 2 to 3, or 3 to 4, until those first properties are running at maximum efficiency and all cap ex possibilities in the short-term are taken care of. Too many investors move on to investment number 2 without fixing the upcoming cap ex and then get blasted in the winter with disaster in two investments. You want to leave each part of your investment foundation as a solid block before building on top of it.

John Warren · Answer

@Denny Cash every market is different and if you are truly cash flowing better on the single family homes I might consider doing that for a while longer. I love multifamily, and most of the time a four unit is better than a single family in my market here in Chicago. With that being said, in some markets single family homes can perform better. They are also much easier to sell to an end buyer, and they can appreciate like crazy. The only issues is that you are going to pick up more and more roofs, HVAC systems, plumbing systems, etc. Over time, you may struggle to manage a huge portfolio of single family homes.