Better to buy several small properties or one big block?

Question

I currently own 4 duplexes, one condo, and one quadplex.

My business partner and I have roughly $1 million in cash that we would like to invest quickly to get some return on our money.

Should we stick to the duplex here and there, or should we buy an apartment block? What are the pro's and con's of each?

William Yeh · Answer

It all goes back to what your priorities are. SFR's have greater potential for appreciation beyond the cash flow they generate simply due to end consumers that don't care about cash flow and want a nice place to live. I qualify that statement with the fact that it depends on what class of SFR you're looking at. Likewise, your appreciation and liquidity of a MF will depend on trends in market rents and investor demand which affect the cap rate the property will trade at.

Some say MF is easier to manage but you are entirely dependent on the property manager who can make or break your investment. On the flip side my group has 12 single family homes with a solid property management company and it is hassle free.

There are two sides to every coin in this debate and no right answer. It just depends on what your priorities are.

Steve Vaughan · Answer

For buy and hold, go with the complex.  Quality on-site mgt will be a huge blessing. Valuation's based on your numbers, not a house down the street.  4 green houses, 1 red hotel!  Good for you @Zamir Kazi ! Got some units and more $ to invest than most!

Nicholas Miller · Answer

What is your exit strategy?  Are you in this until death do you part or do you want something liquidable?  A SFH or 100 SFH's will be much easier to sell than a 100 unit apartment building however the CCR will be far better for the 100 unit apartment building.  It all depends on how liquidable you want to be.

Michael Henry · Answer

Apartment Building: (all thing being equal)

Pros: one roof, one boiler, one location.

it is easier to justify price with income approach valuation. So if you can find a high vacancy building, make some repairs, and get it to 90% or 95% occupancy, you just increase the value of the building.

When is time for you sale a lot easier to liquidate too

Cons:

Because it is one building, if the building ever catches fire or becomes infested with bedbugs (it can happen), the probability of loss of income is high.

Duplex: (all thing being equal)

Pros: you can find inexpensive buildings; the price is not based off of the income it generates but similar sold properties in the area.

Cons: when you get too many if become very difficult to manage and sale as a package.

If you have a sole relation with a bank, they might only allow a limited number of tax-keys per person when it comes to financing and refinancing.

James Kandasamy · Answer

Smaller SFRs or multifamily's would be hard to manage, liquid and more time involved from the landlords. Bigger multifamily (>5 units) would mean less time managing, higher potential of value appreciation and refi opportunity after stabilization. Why you want to buy 20-4- units, with 20%-25% cash down of 1 million and leverage the rest, you can buy building worth 3-4 million which means that is like more than 100 units class B/C apartments. Of course it depends on location.

Zamir Kazi · Answer

@Jared Kemper  By an entire block I meant an apartment complex, there are a few complexes I am eying that are between 30-45 units

Damion Byros · Answer

I think you should jump into the apartment as you can force value do rent raises and there are several other cons and a decent I think cash on cash return assuming your not using financing but with that much capital you could finance a pretty big deal if you used that as a down payment . There are great apartment deals out there you just need to make sure the numbers make sense and it is a profitable deal duplexes are great to but I personally feel like it's just more potential in apartments and your return would be greater everything would be situated in one location although if you used financing on your deals you could get a substantial amount of duplex deals going and you could own some out right you would just have to look at then numbers and cash flows for instance would you be hiring a property manger to manage all those duplexes were as they could mange that apartment building

Joe Fairless · Answer

@Zamir Kazi what are your goals and how much active involvement do you want to have with your portfolio?

Himanshu Jain · Answer

I like complexes simply because of economies of scale. I think it depends on what you already have in your portfolio, it is good to have some diverse asset types in your portfolio to provide some liquidity, which you already have. If I were you I would go for an apartment complex now.

Better to buy several small properties or one big block?

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