Weighing the returns of SFH and MF

[Wade G.]

So if I invested 100k into a MF value play syndication deal it seems I would earn 8-10% passive income (that seems to be the average). If I took the same 100k and purchased four SFH I would (or should) earn about the same net cash flow or maybe even more.

In 2-5 years the MF would be sold or refinanced and I would then get 80- 100% of my 100k back plus a reduced cashflow if the property was kept. With the SFH I may have to wait a little longer, maybe 10 years or so in a normal inflationary market, to refinance the homes and pull out the 100K and take on reduced cashflow.

The above scenario is asuming a normal market, no big dips, no big highs. It seems MF is a faster way to build wealth with less hands on but more risk due to more people being involved (yes I typically don't trust people). With SFH I see less risk because its all on me and I care about my money more than anyone else will.

So, if I am thinking this through right it seems MF is a way to build bigger and faster. SFH seems to have a limited growth unless one is willing to bring a PM and it seems it would take longer. Along the way though one could sell a SFH every now and then to a retail buyer at retail price whereas a MF deal is sold to another investor at likley not full market value.

Perhaps another way to look at it is if one wants to earn 2k - 4k or so per month then maybe SFH is the way to go but if one wants to build to 5k, or 10k or above per month then maybe MF is the way to go.

I only own SFH and have not been involved in MF so I may be off on my thinking. I would like to discuss the scenarios because this is where I stand now...buy a few more SFH or put the money into a syndication.

[Tamiel Kenney]

@Wade G. 

One of the biggest differences is the way MF is valued vs. SF. With SF, your value is pretty much capped based on comps. With MF, you can increase the value by increasing the NOI (increase revenue and/or decrease expenses). Even in a conservative market where you use a 10% cap rate…that means every dollar you increase the NOI is actually $10. You can't do the same thing with SF. Also, MF is typically non-recourse financing whereas SF is typically recourse. I have owned both and would pick MF over SF. I had a lot more headaches with my small properties than I do with our 1900 MF units.

Thanks,

Tamiel Kenney