Invest in quantity or quality?

Question

I've been actively purchasing buy and holds for 5 years before I stumbled on BP a couple months ago.  I went dark for the last couple months while I listened to all the podcast.  I've learned SOOOO much through the forums and podcasts but still have one burning question.  It seems that most investors have the goal of many doors with $100-$200 a door.  I recently purchased a triplex for $650K, did a higher end rehab and am clearing $800 a door and about 10% CoC.  I was hoping to buy 3 to 4 more triplexes following this same model if I can find them.  I'm thinking that fewer properties will easier as it means fewer to manage but maybe I'm missing something because my strategy seems to be so different than most.  Should I be trying to buy less expensive but more properties instead?

Account Closed · Answer

sorry, above was meant to answer @Chris Erwin question but Travis, thanks for your input as well :)

Account Closed · Answer

@Travis Beehler.  Thanks for your input.  I'm only purchasing in my local area right now since I'm doing some of the rehab and the management myself.  I've owned a few out-of-state properties in Las Vegas where I was getting ~200 a door and using a property management company but would end up having to cough up all the income I made throughout the year on the turnover.  The list was always a lot of small things like repairing flooring, paint touchups, replacing dryer, toilet and oven parts, etc. plus the cost of placing a new tenant.  The quality of tenants were generally lower for the lower-priced properties and the cost to fix simple things was higher because I had to use property management to handle it.  In-state gives me much more control over tenant selection and costs which in turn helps keep the profit higher.  I'm exclusively targeting trendy, high-demand areas where tenants tend to be young professionals and am rehabbing the properties with some very trendy, but inexpensive designs like reclaimed wood walls and chalkboard walls.  I've had good success in attracting the right tenants so far and am hoping to replicate this success but before I buy my next one, I'm taking a step back to see if I'm really doing the best I can with my money and thinking about this the best way.

Peter MacKercher · Answer

Janine Crumb If your strategy allows you to clear $800/door when others are clearing $100-200/door, then the quality more than makes up for quantity. The question becomes about diversification since holding a smaller number of properties in a single location leave you more exposed to the local market, but that's ultimately a question about your risk tolerance and how well you've done your market research.

There are a lot of strategies, and fewer of them that work, but either way you cut it there are a lot of ways to make money with buy and hold. Your strategy will really be tested as you grow. Don't be surprised if you find you have to adjust down the road (everyone has to adjust their strategy at some point).

What I've read time and time again on here is that people acquire numerous smaller properties, then transition into a larger (50+ unit usually) complex which allows them to leverage on-site management efficiencies. Which is to say, people tend to value simplicity, cash flow and quality in the buy and hold realm long-term. If your goals point elsewhere, or to that very same place, then the means by which you arrive don't matter -- an '83 Ford pickup can drive the speed limit just as well as a Rolls Royce, but the experience each offers is of course distinct.

Congrats on the good work so far!

Sam Valme · Answer

Hey Janine Crumb! Looks like you've had a lot of success thus far which is great! In regard to lower quality tenants. I say this as a complete outsider looking in but a lower priced property shouldn't directly correlate to a low quality tenant. Prior to looking out of state again. Work with a PM who specializes in assisting with the purchase AND management of the property. They should have a deep understanding of the caliber of renters certain areas attract. As well as ensure their fees will also allow for positive cashflow.

In addition, review their Application Process & Qualification Standards up front. This will give you some insight as to what they are willing to accept.

Good Luck!

Chris Erwin · Answer

Janine Crumb

Sounds like you have a strategy that works for you. I agree that using property managers can give up some control. We have figured out a way around that by using our own maintenance staff in the areas we buy in, which cuts down on maintenance costs considerably. You are wise to evaluate your strategy as real estate is constantly changing. We evaluate our strategy on a consistent basis as well.

Travis Beehler · Answer

No worries! :)

Travis Beehler · Answer

Me to!  Although, I don't invest in Birmingham.  I would add that I'm getting about $350 a door right now profit, so don't take any one person's numbers as gospel. :)

Chris Erwin · Answer

Janine Crumb

I don't think your strategy is wrong. You are purchasing multi family properties, so essentially you are diversifying somewhat, which I always recommend. I buy out of state properties in St Louis, MO and Birmingham, AL. I want to diversify the areas that I invest in, but my strategy is different from yours in that I prefer lower cost properties that tend to produce high cap rates. Are you only purchasing in your local state?