Single family rentals

[Phillip Massey]

I am interested in hearing from people whose portfolio consists of single family rentals. I currently own 7 sfr. I’ve had great success acquiring them over the past three years. But it seems like this is the point where most people start investing in multi family. I’m not really wanting to do that. I run a car dealership in Maryville TN and love my job. So I really just want to keep snagging up sfr. Hopefully over the next ten years I can acquire about 30 more. Has anyone taken the single family only route? If so please lend some information on why you chose it. My initial goal was 40. But with me only being 28 years old. I think I should be able to pass that up 

[Nathan Hall]

@Phillip Massey You actually just made me stop and think about something that my brain has been working on in the background a lot. I listen to a lot of podcasts and books, and you are correct, they do seem to tout multifamily over SFR. And they make good points. Right now I have a mixture of both that are working well (nothing crazy; duplex and SFRs). And I do get the point about multifamily providing more insulation on the payment if something goes wrong, but at the 2-4 unit level I think this is somewhat mitigated. And both of my SFRs are home runs right now, while the duplex has had hiccups. But it's also my breadwinner when it's working. I'm curious what the "insulation" benefit of multifamily is for a thing below five units, or if it is. At my level I'm working all the math as a sum of a whole. At what point does that not work, or at what point do I "graduate"? I've got a contract on my next duplex and while I'm sure it will make me money in cash flow, I know that certain things will need replacing soon. Is it fair to myself to think of the entire portfolio as a multi-unit at this point? Why, or why not?

[Berry Leonard]

@Phillip Massey Hi Phillip, my wife and I have acquired 18 SF rental homes. We purchase 2-3 properties per year, our target is 20-24 homes. We only buy homes in owner occupied safe neighborhoods and target an average rent which is aligned to the average family income of the Triad NC area. We target $900 to $1400 rental rates with a 8-10% cap rate. We have focused our purchases in a 10 mile radius, in many cases, we have multiple homes in the same neighborhood or on the same street. This allows us to reduce our travel and provide better service to our tenants. Also, we seek long term tenants and incentivize four year leases with a minimum of two year lease. While we may lose some rent increases with long term leases, we lower our turn over and reduce our expenses. Also, our area cannot support constant rent increases so long term leases have much more benefit to our strategy. However, we are able to charge slightly above market rental rates because we do a good job rehabbing and maintaining our properties. I do not believe this model is possible with multi family. We closely manage and maintain our properties to insure the highest quality product for our tenants. Also, we are a buy and hold investor and believe in maintaining our properties in top shape. We hear horror stories from many of our tenants about their past landlords and the poor maintenance. We believe this helps maintain tenants in SF rentals. When we secure a good tenant, we want them to stay forever. We target tenants who want to live in neighborhoods and do not want to live in apartments or condos. I believe SF tenants take better care of our properties because they treat it like their home and we provide a high quality product. We buy distressed properties, rehab and rent. Our goal is to rehab enough properties each year to minimize our taxes on the positive cash flow. I prefer to invest in more properties vs paying taxes to Uncle Sam. Our goal is to re-invest 100% of our profits for the next five years while paying down all of our mortgages. It is hard to find distressed multi family properties that would allow the same rehab cost to offset my cash flow and minimize taxes. One of our biggest goals is to minimize taxable income. After our first four Homes, our progress slowed because we could not get under written by Fannie, so We only purchased with cash for a few years which slowed our progress. Several years ago, I found a local bank which allowed us to accelerate our purchases. We have decided to only take 10 yr loans because our goal is to pay off all the properties in the next 5-7 years. The principle pay down on a 10 year loan if 60% of the total payment. We typical finance one free and clear property to purchased the next property. After you acquire 3-4 free and clear properties, this model allows you to quickly add additional rentals. This model is possible with SF or multi family since we use commercial loans. We believe SF homes offer lower risk if not leveraged to heavy and purchased at or below market price. Also, the rents must be aligned with the family income of the local market. If family incomes are NOT rising at the same rate as rents, increased rents are not sustainable. I agree with other comments that multi-family should offer higher returns and faster equity growth. However, it requires much more due diligence than I have time to commit while working in my career. We have developed a business model for our area and the numbers are easy to predict without much effort or added risk. We are conservative investors and looking for long term income growth and not short term profits. As I get closer to retirement age, I believe SF properties offer lower risk with our business model vs MF. Also, In our area, their our many major MF construction projects ongoing which will soon place a major strain on MF rentals. I believe SF properties are not competing with that market and have lower risk to the current over building we see in many markets.

[Irina Belkofer]

Originally posted by @Nathan Hall:

.

Right now I have a mixture of both that are working well (nothing crazy; duplex and SFRs). And I do get the point about multifamily providing more insulation on the payment if something goes wrong, but at the 2-4 unit level I think this is somewhat mitigated. And both of my SFRs are home runs right now, while the duplex has had hiccups. But it's also my breadwinner when it's working.

I'm curious what the "insulation" benefit of multifamily is for a thing below five units, or if it is. At my level I'm working all the math as a sum of a whole. At what point does that not work, or at what point do I "graduate"? I've got a contract on my next duplex and while I'm sure it will make me money in cash flow, I know that certain things will need replacing soon. Is it fair to myself to think of the entire portfolio as a multi-unit at this point? Why, or why not?

One of the major difference is financing. Multi starts at 5 units in one building, up to 4 units get financed on the basis of recent sales. Multi get financed on the income generated by the property.

Even if you have 20-30 SFR, it's still 20-30 roofs, driveways, etc

However, if you rehabbed all these units when purchased, it's not much needed in repairs for years and if it does - it's one at a time, not all 20-30 at the same time. 

[Bee Daniels]

@Nathan G. I agree. Love this answer.

[Jaron Walling]

@Mark Fries If I lived in Jacksonville we would be friends. My Aunt lives there and loves it. My mom is planning to retire there as well. I love what you said about purchasing, managing, and your philosophy on dead equity.

[Gary L Wallman]

Phillip,

Like you I am also a car dealer by day.  I started buying real estate during the crash.  It was a no brainer for me.  Like buying 20 dollar bills for 10 bucks.

Indy, where you live, and the suburbs of Dayton where I live have a lot in common when it comes to real estate. Primarily the rate of return on SFR's. We are able to buy in decent areas (B, B-) and easily hit the one percent rule.

I picked up 85 SFR's during the crash and after and I'm still buying today (close on one tomorrow 65k all in 850.00 rent). I do have 35 or 40 multi doors. I find them harder to acquire, rent and manage. They can provide a slightly greater cash flow though, which can be important if you're leveraging.

IMO if you want to get rich with minimum stress continue on your path.  If you want mega-rich, you'll probably need to go after the large Multi's.  Bigger risk but bigger rewards.

Either way, good luck and happy hunting.

[Mark Fries]

@Jaron Walling Thanks man!!

[John Woodrich]

@Phillip Massey I didn't read the above comments but I have one client that has ~100 SF houses.  They have purchased over a period of 15-20 years and are able to manage them with one employee and by working part time, roughly 20 hours per week.  The husband is pretty much a handyman by trade so that helps them quite a bit, the employee and wife work on the property management side.  They do very well and have a lot of equity, most of the people you find on here are trying to leverage up as quickly as possible and would call some of their income "purchased cash flow".  

The benefits to SF is that they typically take less time managing, they are a little more liquid in case you wanted to sell, and they can appreciate a bit more although not guaranteed.  It can be harder to get these to cash flow which is why many people look for multi-family in building a rental portfolio.  Personally, I have both SF and MF - my SF properties were rehabs so I have some equity sitting in the deal which is why they work well.  Many BP investors prefer to pull everything out and try to scale up.

[Phillip Massey]

Originally posted by @Berry Leonard:

@Phillip Massey

Hi Phillip, my wife and I have acquired 18 SF rental homes. We purchase 2-3 properties per year, our target is 20-24 homes.

We only buy homes in owner occupied safe neighborhoods and target an average rent which is aligned to the average family income of the Triad NC area. We target $900 to $1400 rental rates with a 8-10% cap rate.

We have focused our purchases in a 10 mile radius, in many cases, we have multiple homes in the same neighborhood or on the same street. This allows us to reduce our travel and provide better service to our tenants.

Also, we seek long term tenants and incentivize four year leases with a minimum of two year lease. While we may lose some rent increases with long term leases, we lower our turn over and reduce our expenses. Also, our area cannot support constant rent increases so long term leases have much more benefit to our strategy. However, we are able to charge slightly above market rental rates because we do a good job rehabbing and maintaining our properties. I do not believe this model is possible with multi family.

We closely manage and maintain our properties to insure the highest quality product for our tenants. Also, we are a buy and hold investor and believe in maintaining our properties in top shape. We hear horror stories from many of our tenants about their past landlords and the poor maintenance. We believe this helps maintain tenants in SF rentals. When we secure a good tenant, we want them to stay forever.

We target tenants who want to live in neighborhoods and do not want to live in apartments or condos. I believe SF tenants take better care of our properties because they treat it like their home and we provide a high quality product.

We buy distressed properties, rehab and rent. Our goal is to rehab enough properties each year to minimize our taxes on the positive cash flow. I prefer to invest in more properties vs paying taxes to Uncle Sam. Our goal is to re-invest 100% of our profits for the next five years while paying down all of our mortgages. It is hard to find distressed multi family properties that would allow the same rehab cost to offset my cash flow and minimize taxes. One of our biggest goals is to minimize taxable income.

After our first four Homes, our progress slowed because we could not get under written by Fannie, so We only purchased with cash for a few years which slowed our progress. Several years ago, I found a local bank which allowed us to accelerate our purchases. We have decided to only take 10 yr loans because our goal is to pay off all the properties in the next 5-7 years. The principle pay down on a 10 year loan if 60% of the total payment. We typical finance one free and clear property to purchased the next property. After you acquire 3-4 free and clear properties, this model allows you to quickly add additional rentals. This model is possible with SF or multi family since we use commercial loans.

We believe SF homes offer lower risk if not leveraged to heavy and purchased at or below market price. Also, the rents must be aligned with the family income of the local market. If family incomes are NOT rising at the same rate as rents, increased rents are not sustainable.

I agree with other comments that multi-family should offer higher returns and faster equity growth. However, it requires much more due diligence than I have time to commit while working in my career.

We have developed a business model for our area and the numbers are easy to predict without much effort or added risk. We are conservative investors and looking for long term income growth and not short term profits.

As I get closer to retirement age, I believe SF properties offer lower risk with our business model vs MF.

Also, In our area, their our many major MF construction projects ongoing which will soon place a major strain on MF rentals. I believe SF properties are not competing with that market and have lower risk to the current over building we see in many markets.

 Wow that’s awesome model you have! Thanks for sharing 

[Phillip Massey]

Originally posted by @Gary L Wallman:

Phillip,

Like you I am also a car dealer by day.  I started buying real estate during the crash.  It was a no brainer for me.  Like buying 20 dollar bills for 10 bucks.

Indy, where you live, and the suburbs of Dayton where I live have a lot in common when it comes to real estate. Primarily the rate of return on SFR's. We are able to buy in decent areas (B, B-) and easily hit the one percent rule.

I picked up 85 SFR's during the crash and after and I'm still buying today (close on one tomorrow 65k all in 850.00 rent). I do have 35 or 40 multi doors. I find them harder to acquire, rent and manage. They can provide a slightly greater cash flow though, which can be important if you're leveraging.

IMO if you want to get rich with minimum stress continue on your path.  If you want mega-rich, you'll probably need to go after the large Multi's.  Bigger risk but bigger rewards.

Either way, good luck and happy hunting.

 85 sfrs! Whoa. That’s impressive. I just like the single family model. It works well for me. Thanks for sharing 

[Jill F.]

@Phillip Massey 

I only have multi-family but I am interested in picking up some SFRs. One of the advantages of MFR is that you can more quickly get to a place where you can do pretty large capital expenditures out of revenue reducing the need for huge (per unit) cash reserves. However, I would like some conventionally financed SFRs to use as "move up" properties for good tenants, for possible appreciation, and in order to have some properties that I could more easily sell off to raise funds-- since I have mostly financed my MFRs in groups with commercial loans.

[Dassi Lazar]

@Phillip Massey I'm all over SFRs. I started 1.5 years ago.. I have 9 right now and 4 under contract. I do areas with an arv of $150k+. I am not finding any multis that make sense return wise. I like a specific county. Its all a numbers game if a multi makes sense I would go for it but haven't found that even close. I also love being a 100% owner verse raising tons of money and sharing equity on these multis.

[Jeff Mauerman]

I’m new here, so please forgive an ignorant question. Wondering about @Mark Fries numbers - I have access to a market with similarly priced and valued C properties (and comparable rents), but my calculations show $250-$350 per door maximum with a cash on cash return of just under 12%, assuming 50% expense roll. How do you keep your operating expenses low enough that you are making such a huge profit per door? Appreciate any info, you are having inspiring success!

[Jaron Walling]

@Jeff Mauerman That's a great question. I was wondering the same thing. It probably depends on the condition of the mechanicals (HVAC, plumbing, roof) and quality of rehab completed before tenants move in.  

[Mark Fries]

@Jeff Mauerman Good question! Here is some of my archaic math: Buy for 21k cash Rehab for 10k cash Total costs before renting let's say 32k Insurance costs me $50 a month on the higher side Vacancy/turnover- my units are rented usually before I even finish the rehab ( When you are a good landlord and you rehab the properties correctly this can happen) but lets plug in $50 a month for that. Vacancy- I have only had to do 2 evictions over 5 years with a ton of properties. I also keep a list of the 20 people a week that call me looking for a house to rent, and reference that list to make re-renting even quicker Maintenance- $50 a month...maybe.. I do my own property management and I do the repairs 75% of the time. Taxes- $50 a month is average So...if I am renting for $875 minus $200 for the above stuff that leaves $675...so minus out another $75 a month for rogue stuff I might be missing...equals $600 Sound right? Thoughts?

[Jaron Walling]

@Mark Fries That sounds great and reasonable but how long does a $10k rehab hold up? Do you even look at property that needs major repair? Thanks 

[Mark Fries]

@Jaron Walling Holds up for a long time actually. I dont buy homes that need full kitchen and bath redos. I install a 4-5 year old used HVAC system that has the cheaper 410a freon versus R22 (more costly). They last for at least 8-12 years. If a condenser blows up, my guy puts in another used one for like $500...labor and materials. I put in new water heaters, and if it needs a new roof, I do a "roofover" with new architectural shingles. It's cheap and lasts at least 20 years. Insurance accepts roofers in florida. Electrical systems just dont "break"...so not much to do there. Rest is just paint and durable vinyl plank. ( use same brands and colors on all homes, saves on turnover costs) I dont buy homes with 100 year old wood windows, so not much expense there.. All city sewers so no septic issues, city water so no well pumps...

[Jeff Mauerman]

@Mark Fries, thanks for the detailed explanation. My situation is such that I will need to factor in more vacancy, capex at 5%, and management fees. That explains the difference between our numbers. Great strategies looking for places that don’t need kitchens and using gently used HVAC.

[John Woodrich]

@Mark Fries it sounds like your strategy is to find houses for under $30k, that don't need kitchen or bath work, already have newer windows, and you have a contact who can sell you AC units installed for less than the cost of refrigerant...  And all of this in a C neighborhood...  My concern here is that you are really investing in D- neighborhoods...  A quick search for Jacksonville brings up some very cheap houses including many active listings under $20k.

Sounds like it is working for you so I guess that is all that matters.  I caution inexperienced investors from investing like this, many can't afford the hardship if a mistake is made upon purchase.

[Steven Eitreim]

Phillip.  You need to do what you're comfortable with.  I lean multifamily, but that doesn't mean it's right.  There is $ to be found in all niches, and it would be unfortunate if we all aimed for the same target.  You'll have different market dynamics to consider, as hopefully you can acquire your additional properties in a down market to ensure that solid equity, but I wouldn't suggest you need to "graduate" to a different class if that's what you feel comfortable doing.

Best luck

[Mark Fries]

@Jeff Mauerman Thanks for the feedback Jeff!

[Mark Fries]

@John Woodrich I don't think you can just get on Google or MLS and immediately deduce that just because houses are cheap that mine must be in D minus neighborhoods I don't own any homes that are D or F neighborhoods if anything they are C plus B minus type.

[John Woodrich]

@Mark Fries

A quick MLS search confirmed that Jacksonville probably has a strong D/F area as there are many abandoned houses that can be picked up for under $20k. It sounds like you are purchasing in this price range but you are finding properties in better areas AND finding houses that do not need kitchens, baths, windows, etc. Sounds like you found a good niche market for yourself.

Being that C/D/F areas are somewhat subjective I would caution new investors who think these are normal numbers. 

[Phillip Massey]

Originally posted by @Gary L Wallman:

Phillip,

Like you I am also a car dealer by day.  I started buying real estate during the crash.  It was a no brainer for me.  Like buying 20 dollar bills for 10 bucks.

Indy, where you live, and the suburbs of Dayton where I live have a lot in common when it comes to real estate. Primarily the rate of return on SFR's. We are able to buy in decent areas (B, B-) and easily hit the one percent rule.

I picked up 85 SFR's during the crash and after and I'm still buying today (close on one tomorrow 65k all in 850.00 rent). I do have 35 or 40 multi doors. I find them harder to acquire, rent and manage. They can provide a slightly greater cash flow though, which can be important if you're leveraging.

IMO if you want to get rich with minimum stress continue on your path.  If you want mega-rich, you'll probably need to go after the large Multi's.  Bigger risk but bigger rewards.

Either way, good luck and happy hunting.

 85 sfrs! Whoa. That’s impressive. I just like the single family model. It works well for me. Thanks for sjarun

[Jerry Cinor]

@Mark Fries I am planning to move to Jacksonville soon. You’re crushing it. Nice work man. What are some of best area to invest in Jacksonville? In your price range? 20-25k pre rehab. I definitely don’t want to be in middle of war zones as you mention earlier. Thanks in advance!