Shifting from MFH to SFH

[Jacob Elbaum]

Hello everyone at BP!

So I was just about to get a 4 unit C/D class property in a C class area on contract, and then suddenly thought to potentially back out of the deal. A lot of work is needed and the property is over 100 years old. Even if the work is done and the apartments fixed up a little bit to meet the local standards, there's likely very little chance to raise market rents due to the strange structuring of the building. 

The budget I've given myself to spend has enabled me to look and analyze properties like this one that are also C/D class properties and in C class areas. Other than that, I've been pretty limited on the area because of budget. 

My first thought that comes to mind, is that it would be better to follow the BRRRR strategy and shift over to SFH where my budget can go further and I'd be able to shift to C class properties in B class areas, which provides more value add opportunities.

Does anyone have any advice in making this shift over? 

What are the major differences you'd recommend to be aware of when shifting strategies from MFH to SFH?

Thank you BP Crowd! :)

[David Faulkner]

A multi in C class hood vs a SFR in a B class hood is a no brainer. Go with quality over quantity. I actually don't think of things in terms of number of doors, but rather how much profit my portfolio throws off and how reliable it is at doing that. All other things being equal, I want the FEWEST number of doors that would reliably get me to my financial goals ... beyond that, Mo' doors = Mo' problems. I have nothing against multi's, but if you can't afford a quality multi in a quality neighborhood then you should definitely pass. You will have more inventory to choose from and quite possibly more value add opportunity with SFRs, but there will be fewer distressed properties and the initial cash flow on paper in B class as opposed to C class. With B class SFRs you will likely be targeting young married professionals (maybe with kids), which is normally a higher quality tenant pool. Or you can live in it and rent rooms to start before you move out to the next place and convert it to a pure rental. So, definitely look at the numbers like a flipper would as well as a landlord ... as I like to say, I've flipped every property that I've ever bought, it is just that I flip them to the rental market instead of the sales market :) My "sweet spot" for SFR rentals has been 3/2, 1200-1600 SF, 1980s-1990s, no HOA, B class, cosmetic fixer that is the smallest, ugliest, most run down house on a nice street with nice homes ... boring but reliable.