SFH vs. Multi in Houston

[Chip Ciputra]

I am an American/Houstonian, currently living overseas. I have $300K cash to invest in properties. My Plan A has always been to buy as many SFH as I can, and then let a PM manage them for me. I'm a buy & hold kind of guy, so I love cash flows.

I bought 2 SFH this winter. However, since Jan, I've been unable to secure a contract at a reasonable price. Everything seems to be selling at blazing speed at very high price compared to last fall. So now I'm beginning to consider multis and small apartments too, even though these also present their own issues.

I have a few options:

Option A: continue buying SFH. Cap rate is about 7-8% Con: hard to get good deals, long & cumbersome process to buy several SFH.

Option B:  buy a 20-25 unit apartment for around $1M, cap ~10%. Con: low property quality no/or in bad neighborhood. 

Option C:  I expect to sell another property this summer which will give me additional $300K to invest in. So option C is to wait a few months and buy a larger 40-50 unit apt for around $2M, cap ~9%. Con: the wait. And I'll be putting all my beans in the same basket, practically. 

What should I do?

Or Option D?

[Sam Craven]

I'm surprised your cap rates are so low for your single family. If you are paying retail and only looking on the MLS then i could understand. As a rule, we only pursue wholesale properties for land lords if the buyer can achieve 11% CAP rate and 15% equity or better. Most fall at 12-13% CAP.

As for your other options, Diversification is over rated.  With that said, i feel like multifamily in Houston is a little inflated right now.  Class C space is 9 and 10 cap when last year it was 12 and 13 cap.  We have TONS of new units coming on line this year to meet demand, and we I think we are going to see rent rates fall late this year to early next year.

When you are talking about that much cash to put to work, be it in SFH or MF, you want to make sure you are timing the market appropriately. I think SF in houston is a safER bet right now for a long term hold then MF right now.