What $ amount cashflow per door really gets you out of bed......

Question

Hey folks,

The more deals that come across my desk for multifamily units, the more I ask myself this question:  How much cashflow per door for a multifamily property makes sense for me to manage a small multifamily building?

Intuitively, the larger the complex, the better - provided you have cash flow.  But then the more tenants, the more headaches, right?  So would it really make sense to invest in a 10 unit complex making $100/per door cashflow a month ($1000 total per month, $12k a year), but you have to contend with 10 tenants?  Does $12k/year really get you out of bed at 3AM to deal with complaints/problems, verses two or three SFHs that might produce the same ?

So what is your number? What are your thoughts?

Nick B. · Answer

It depends on your goals.

If 10 units is the biggest property you would ever buy, it is probably not worth the hassle.

But if this 10 units deal is just a stepping stone to a 1000 units portfolio, then, by all means, jump out of the bed and do it!

Sylvia B. · Answer

How many of you really have a problem with calls at 3am?

I've never received a call later than 9pm, and it's very unusual for a tenant to call later than 6pm. If you're getting non-emergency calls in the middle of the night, maybe you need a better class of rentals.

Percy N. · Answer

Depends on your goals and objectives.

In the beginning, when I self-managed my SFR rentals, I would take calls until 10 pm (on occasion but odd how it happens at the worst time - e.g. pipe burst in rental as I was preparing valentine's dinner for my wife).

Now, with over 1000+ units, there are 3 levels of managers/organization to handle tenant issues. Don't worry, other type of "issues" will replace the tenant issues ;-)

Jon Kelly · Answer

@David Cozzi I thought this was a silly question at first, but you raise a fair point... There's no perfect answer here because they are different assets. I would decide the best course of action based on: (1) CoC return or IRR for both scenarios, and (2) Which path gets me closer to my goals? Do you want to continue dominating the SFH market, or scale up to MFH?

"More tenants, the more headaches" could be true but you could also make the same argument about properties. "More properties, the more headaches." Instead of 1 roof on the 10-unit, you have to deal with 3+ roofs on your SFHs.

I'd also consider working with a property management company if receiving calls at 3am from tenants is a concern. For a nice fee, the property managers will take care of these headaches and you can focus on scaling your business.

Michael Ablan · Answer

@David Cozzi - For me, it comes down to the collective cashflow of the entire unit when at 95% capacity (aka, 5+ units)

I will look at smaller deals, but with the intention to flip them.

I wasn't always like this though.  Everyone comes into the game with a different need, want, goal.

David C. · Answer

@Sylvia B. and @Michael Plante

We have never received a 3AM call on any of our SFHs.  Our properties are in A neighborhoods, since you asked.

But I have read posts of others who reported with MFHs stating "more tenants under one roof tends to spawn more issues" where they have described issues occurring in the middle of the night.  Essentially, one person's experience does not a rule make.  These days, I don't discount any potential tenant issue.

I would also note that you should not get a call from a SFH owner complaining that the tenant on the other side of the wall/ceiling is causing a disturbance, making a mess, or having a domestic dispute if you are renting to a single person.

Once you get more than one tenant/family under a single roof, this now comes into play.  That was my point.

Michael Plante · Answer

Have never received a call at 3 AM or any time close to that.

Bryan Mitchell · Answer

@David Cozzi, if you’re only cash flowing $100 a door it is going to take you a very long time to build some substantial passive income. And you’re right, more units equals more problems, but adding 10 units to existing portfolio if all of your systems are in place, the additional time required will be inconsequential. I’ve always used a third party property manager and if they are good, you “headaches “ are few. I’d rather have 10 doors with $500 CF than 50 doors at $100. However there is something to be said about having more assets/doors (and diversity) that could possibly insulate you from some risks. And then there’s the exit strategy that changes with more units per property.

David C. · Answer

@Michael Plante

Nope.  Not true - They call landlords about noise, fights and lots of other things.  I have spoken to landlords and property managers of multifamily units, and they do call them (that doesn't mean that they don't also call the police).

Just because they may not have called you, doesn't mean that they have not called other landlords.  This is what I meant about "one person's experience does not a rule make".

That being said - This is starting to veer off of the main topic:  Cashflow amount vs. "headaches" of ownership.

Michael Plante · Answer

Oh my goodness OVER 1000 units that is stunning

May I ask what you personally Net on that number of units?   I’m thinking over $2,000,000 a year before taxes?

What $ amount cashflow per door really gets you out of bed......

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