Multifamily BRRR Strategy

[Account Closed]

Wanted to get some opinions and thoughts on my mulit-family real estate business strategy:  

I have experience as a multifamily architect but I want to get into investing/development. My plan is to start with 2-4plex with Cap Rate of 8%-10% here in Houston or Harris County using the BRRR strategy. I will do 4 of these by the end of 2017, and after getting enough experience renovating, start my development arm by building a small multifamily for my family to live in (using FHA loan) for 2 years. I will essentially swap back and forth between BRRRR and development depending on the market to continue build my business.

My dream is to provide more housing options here in Houston and foster a sense of community in my multi-family.  Also have the financial freedom to be with my family and to serve here and overseas when I want to as a volunteer architect for underserved/developing communities.

Thanks in advance for any feedback!

[Jonathan Williams]

@Sarah Kline we are in Greater Eastwood. To each his own on focus area, really. I had done some MFH market analysis when looking at a duplex in Eastwood (lighter yellow) and a duplex in 3rd ward (blue). The top row of data shows average rent $ for a 2bed for each zip code (color coded on map), and the bottom row shows the number of units on the market over that time period (I don't recall what the time period was exactly - maybe mid-2015 to mid-2016?). 

3rd ward had a lot more on the market and commanded a higher rent, but if you've spent any time in 3rd ward you know that those MF properties that border the museum district tend to be the nicest (hence the higher rent, closer to amenities) and as you go East you start to lose neighborhood quality - this is a gross generalization, of course, and just my observation. *Keep in mind the blue data set above (zip 77004) includes museum district and mid-town, so that average rent is way higher than you see in third ward. I had looked specifically at MFH's in 3rd Ward and remember averages around $0.91/sf rent for a 2/1 and $1.00/sf rent for a 2/2.

I liked the idea of grabbing an Eastwood MFH and eventually getting "run over" by EaDo expansion. And I do think EaDo will grow faster than 3rd Ward (development speaking) for various reasons. But neither will grow as fast as you want, and expectations should be tempered.

MFH deals....ours was an oddity. It was on a double lot, but had renters placed. We were able to create value by parsing out the development opportunity and the buy-and-hold opportunity. There are deals every once in a while on the MLS, but if you have "another route" that is almost always more favorable. "other routes" are really just local relationships or marketing, of which we've only been in the neighborhood a year and are still building. But I'd say if you can get your 1% of PP in gross monthly rents you're doing ok. We're renovating the 4-plex now and will do better than that after rehab (and have "free land" on the vacant lot), but we worked pretty hard for that deal.

We've had one set of tenants and had great luck. Both college (one set under grad, one set grad students) and were very respectful and we had a good thing going. But we needed to reno because of some known issues with the property, so we're right in the middle of that now. We'll be marketing the duplex for rent next month and it'll be first of next year for the 2 studio's out back.