Looking to move from STR to multi unit buildings

[Claudia Jaeger]

Hi All and thank you in advance for taking the time to read this post! I have 2 STR and I'm looking to move into multi family buildings. I have 250k liquid and am contemplating selling a STR ( 5 bed 3 bath Poconos )that I just bought 4 months ago, to get another 250k bringing my funds up to 500k. #1 is this something I should do or should I hold onto it? We don't know what it will clear since we've only owned it for a few months, however it is geared to make about 75-100k and clear about 25-30k after PM and all other expenses..

My husband has recently retired and I sell real estate, looking to start enjoying life with our 3 dogs and thought having 1 multi unit building may be easier that buying multiple STR. Thoughts?

[Nathan Grabau]

I have been able to get CoC returns in year 1 with multifamily in the Ames, Iowa area of around 8%, and then overall returns with loan paydown and appreciation into the mid 30s. That will probably go down a few points with today's interest rates, which might be a pretty significant factor when you compare your returns.

I like Ames because the population is not decreasing like Detroit or Cleveland, but you can get year 1 positive cashflow with on market deals unlike most markets today. With 500k in dry powder, you could go very wide very fast if you wanted to, getting 30-40 doors pretty easily. I realize that it is not the best metric, but it is easier to raise rent on 40 units by $50 than on 4 units by $500, assuming it is professionally managed, which it sounds like you already see the importance of. If you send me a DM, I am happy to share the terms of the deals that I have gotten, and my realtor contact who is an investor/ my property manager! I have been very lucky finding him as he has made long distance investing a breeze! 

You could also use some of the 250k to see how you like MF, and then made a decision on whether you would like to buy more STR or MF.

As your husband and you move towards retirement together, I would be really careful about the political risks associated with STR too. I think you can work out most of this by being careful with what municipality you are in and understanding how the locals see STR vs hotels, but heads are going to roll because of our housing crisis, and we just don't want it to be with things that we own.