thinking of making the transition from houses to multi-family

[Adam Christopher Zaleski]

I have two single family homes that are rentals in two different college towns. I have owned one for 10 years and the other for 5 years. I am a college prof and have lived in college towns most of my adult life. I feel like my niche is college towns. However, I currently do not live in a college town.

It seems like most investors start with single family homes and if successful, they eventually transition into larger multi-family.

However, I have a few concerns.

1) I would feel uncomfortable if I bought something that was not in a college town.

2) I have never lived in an apartment complex. I don't understand anything from the tenants perspective.

3) Based on my experience in college towns, single family homes close to campus are highly valued by students. My vacancy rate has been zero over the last 10 years. When I put an ad on craigslist, I typically get about 30 replies within 24 hours. Condos and apartments near campus are less desirable (more supply) and their vacancy rates are higher.

Rental #1

Single family home (3 bed/2 bath).

Worth: 225K

Owe: 75K

Mortgage, taxes, insurance and PMI: $665

Rent: $1700

Rental #2

Single family home (4 bed/2bath). Thinking of adding 1 bed and 1 bath within the house.

Worth: 335K

Owe: 115K

Mortgage, taxes and insurance: $950

Rent: $2000 (can raise to $2500, if I convert to a 5 bedroom/3 bath).

I have no desire to quit my job. The rental game is a fun side hobby for me. It also helps reduce my W-2 taxes.

If I sold both properties, we would walk with 330K, after realtor fees, but not including taxes. As a result, 330K would be based on a 1031 exchange. We also have about 30K cash and another 50K in the stock market that I wouldn't mind selling. Is this enough capital to think about an apartment complex? Should I try to do a 4-plex before an apartment complex? Should I wait another 5 years? Any advice would be helpful. Thanks.