Thinking about selling SFHs + primary, renting primary, buying MF

Multi-Family and Apartment Investing
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Thinking about selling SFHs + primary, renting primary, buying MF

Jessica G.
Investor · Dallas, TX · Member since 2014 · 177 posts · 213 votes

Hey BP! So we are thinking about selling our two SFH rentals which have appreciated decently and also have very mediocre cash flow, as well as our primary which we bought really as a "live in flip". Selling all 3 would likely get us $180k - $200k in cash. Then we would rent our primary (can anyone say NO MORE fixing AC units, roofs, plumbing, etc etc etc)?? Hallelujah. The thought process behind this is that we ultimately want to be in multi family anyway, and I don't want to get stuck with mediocre SFH rentals if there is a downturn (I know I know, no one knows what is going to happen). We would buy another primary when we found a steal.

So... what would you do in our situation? I think part of me is hesitant because I hustled my *** off to get all 3 of these houses and selling would kind of make me feel like we are going backwards! But the ego needs to get checked in order to make the smartest move. Thoughts?

I appreciate any advice!

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y

Well, there are advantages and disadvantages both ways. Keep in mind that if your biggest worry is a downturn, multi-family is no more immune than single-family; depending on the market it can have more exposure, because more SFHs may come on the market driving down apartment demand. Beyond that, you have a greater number of exit strategy players with SFHs, whereas MFH exit strategy is going to be limited to investors - most of whom are looking for a deal. 

So I think your question isn't really "SFH vs MFH", which is a legitimate question, it is "Are the particular SFHs I own ideal as investments?" If they are not, there's no harm in selling and getting something different - but that something different doesn't have to be MFH.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    If selling is part of your strategy, then it's not going backwards, @Jessica G. I think moving out of SFR and into MFR is a smart move. Lower expenses, more efficiencies of scale, more opportunities to add value.

    The key is to start the wheels moving before taking the leap. You'll want to do 1031 exchanges on your SFRs in order to defer the capital gains taxes. Start exploring $500k-$1MM properties, preferably with value-add potential.

    Are you planning to stay in the DFW market or focus somewhere else? That's a very competitive market. As a small player, you may have trouble getting traction.

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  • Michael Skoczylas
    Attorney · Southfield, MI · Member since 2016 · 102 posts · 83 votes
    6y

    I agree with @Jaysen Medhurst. You want to keep getting bigger and better properties to accumulate more wealth. I would 1031 into a MFR. I would begin looking now for the property, and talking to lenders to get the best deal. In today's low interest rate market, locking in a good rate on a much bigger investment for you, while deferring (maybe indefinitely) your payments to Uncle Sam is the best route forward to increasing your wealth. I say keep trading up in this low rate environment. 1031 is the key though, because you do not want to lose 20%+ to taxes each time you trade up. Let me know if I can help in any way.

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  • JD MartinBusiness Member
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    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y

    Well, there are advantages and disadvantages both ways. Keep in mind that if your biggest worry is a downturn, multi-family is no more immune than single-family; depending on the market it can have more exposure, because more SFHs may come on the market driving down apartment demand. Beyond that, you have a greater number of exit strategy players with SFHs, whereas MFH exit strategy is going to be limited to investors - most of whom are looking for a deal. 

    So I think your question isn't really "SFH vs MFH", which is a legitimate question, it is "Are the particular SFHs I own ideal as investments?" If they are not, there's no harm in selling and getting something different - but that something different doesn't have to be MFH.

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