Quote from @Stuart Udis:
IRR calculations will always benefit the shorter round trip investments, so not the best deal metric to focus on. I would like to focus on the SFR investment strategy. Despite its popularity, very few actually understand the asset class and how to achieve optimal returns. I also recognize there are different motivations behind SFR investing. For instance high net worth investors may want "A" location homes for tax benefits and wealth preservation. For the purpose of this exercise lets focus on the other 99% who invest in SFR homes which is for the highest yield outcomes. Here's the breakdown of the 99% SFR investors:
1. Investor buys in a market that has poor fundamentals and is stagnant. Normally those who invest in these neighborhoods are hyper focused on completing the BRRRR method, cash flow or acquiring as many doors as possible. These investors never experience meaningful appreciation, achieve inconsistent cash flow & loans are slowly paid down with most moving on from the asset before any meaningful debt paydown occurs.
2. Investor buys in a market that has fundamentals that suggest the neighborhood will experience a more significant appreciation event but investor sells prematurely.
3. Investor buys in market with the correct fundamentals and experiences a sudden and significant appreciation bump. This normally occurs in a short window of time when the neighborhood experiences the most significant changes and home ownership increases. Thereafter the appreciation levels off to more normalized rates. Investor sells immediately after the sudden appreciation event.
4. Investor buys in the example 2&3 market, but continue to operate the rental after the appreciation event occurs rather than sell and re-invest in an asset that will generate a better rate of return on your equity.
These are the possible outcomes for 99% of SFR investors. Most fall under category 1, followed by category 4, then 2 and finally category 3. Those who fall under category 3 achieve best results but they are an extreme minority. If you happen to fall under category 3, chances are you will hit a home run and out perform LP investments in syndications by a wide margin. Identifying the fundamentals to achieve the investor 3 result is not difficult but very few understand this should be the goal of a SFR investor.
Stuart ,
I really enjoyed reading your reply to Dave. I’m a newbie, and your #3 scenario is the a type of investor I’d like to be. I know you said its the minority of people that get those results however, what would help me to learn in my research and education, on how to get there? I’ve been reading different book bigger pockets put out, reading forums and listening to podcasts , but just out of curiosity, do you have any other ideas for me to get to where I want to be ? in terms of my research and making those correct decisions. I just like the philosophy of buying and renting it out and holding in for a very long time I’m 46 years old I can hold from 10 to 20 years.
