MFH Returns or Hard Money Returns

[Tanner Litchfield]

I have been trying hard to try and build my fathers real estate portfolio. He buys SFH with cash and let's them sit. He knows it's not the best way to utilize his income, so he's open to other ideas.

I have been studying hard to help him convert his portfolio into MFH and to buy more apartments to get better returns using the bank to leverage his money.

I present him the numbers and it usually comes in around 10% cash on cash return. He says that he doesn’t want to throw his money into that because he can be a hard money lender for developers where his “numbers” are a lot higher. The developers usually throw equity as well.

The simple question is, what are the pros and cons of MFH investing yourself versus him investing in a developer who builds apartment buildings or senior living and gives him “18% return plus equity and everything you ever wanted”?

[Dallon Schultz]

@Tanner Litchfield if he doesn't want to be actively involved in investing then maybe he should continue getting his 18% and equity from what it sounds like, in a pretty passive way. That sounds like a sweet deal to me. Sounds like he's a numbers guy so if you are trying to convert his portfolio, present a value-add play that exceeds that 18%. Does the 10% take into account forced and natural appreciation? Is there an exit plan for the property or would he buy and hold? Another aspect of MFH that many people fail to take into consideration is the depreciation and tax benefits involved. What would his return look like if he paid little to no income tax year after year? Just something to consider.