Should I invest in first Multi 1.5 hours drive from home?

Question

I currently have 7 rental houses and I am looking to make my next investment purchase a multifamily. I toured a 24 unit about 1.5 hours drive from my house.  It is in a small town (population 7,600) but numbers at first appear to be very good and I believe it would be a pretty straightforward transition from c to a b property.  Ideally I'd like to buy 50+ unit multifamily to get the economies of scale of an onsite manager, but again this one seems to work numbers wise and meets all my return objectives.  I have a full time job and 3 kids so of course time is a factor.  I think this might  be a good stepping stone to the bigger properties and raising money.  Thanks for your insight.

Michael Tempel · Answer

I agree with the other post on this site.  I recently pass on a similar situation with a smoking student housing deal (would have to fully renovate the property from shell, but the price was right).

We also tried to roll in a bunch of smaller and similar sized properties to reach economies of scale, but decided that 4 closings and different asset types could be a huge headache.

I am the PM and part owner of our investments, so unless completely necessary I try not to hire other PM companies, but if you have a great deal acting as the asset manager and have a local PM manage the property might be a solution if the numbers work.

Another concern I have is if a small town will support future growth or slowly lose growth over time.  In Minnesota I have seen some town flourish and other collapse entirely based on jobs leaving or coming to the area.

In my case it was a growing college town that was expanding, actually the hardest part about walking from the deal.   I just know a much bigger better deal is right around the corner, but I I am up to my neck working on this one....I am going to have to pass on the better deal.   It takes a lot of time to locate close and turn a property around.

Steve Vaughan · Answer

1.5 hours may as well be the moon in the middle of the night or with a nit-picker tenant.  I have mulit-families in a small town as well.  In my opinion, 24 units can justify the cost an on-site manager depending on the average rents per door. Getting quality on-site mgt is the key.  I have a guy that helps with my 17-units 30 minutes away but not that much.  Finding a quality guy that sticks around in a small town my be tough.  A quality PM co is probably tough to find as well.  The cap rate in my small town is over .14 so some headaches are worth it.  Don't do it for a cap rate much below that for sure.

Hattie Dizmond · Answer

@Charles Mangum I know some folks who do it very successfully. They use a "tenant manager" who gets some or all off his/her rent for providing the onsite management. Then they use a local realtor for the leasing, listing, screening activities. The realtor also does a monthly drive by just to ensure the tenant manager is doing their job.

The good thing is that at 1.5 hours it isn't prohibitively far, if there is something major that needs your approval.

Joel Owens · Answer

Pass.

Had a 20 unit before in a good area that was 1 hour from me. I will never do that again. It has to be enough size and scale where you remove yourself from the property to do far away.

Just my opinion.

Does the seller own any others close by there they would think of selling?? Maybe you could do 2 to 3 buildings right in the same area and have scale that way.

The problem with  a 24 unit is you can't afford a full time repair person onsite due to scale. The PM isn't the biggest issue it's the constant calls for the repair person to handle and maintain the asset. The tenant base and rents per door will also play a factor. Might work in some cases but I won't touch that size now.

Should I invest in first Multi 1.5 hours drive from home?

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