Trading Up From Single Family to Multi Family

Cameron Tope Pro

Property Manager
Katy, TX

Replied Nov 14 2019, 14:05

@Steve Corder I have also thought of this but I've heard horror stories because operating a large multi is non the same every bit operating pocket-size multis and SFRs.

You also have the risk of a lot of mutli units beingness built recently - at least in the Houston market.

While you have all your units nether one roof, y'all also have all your units under one roof. If the area takes a turn you could lose your shirt.

That's why I decided to keep all my small multi's and SFRs.

Does that brand sense?

Greg Dickerson

Developer
Charlottesville, VA

Replied Nov 14 2019, xiv:45

@Steve Corder @Cameron Tope a lot of this depends on the numbers, your condolement level and your resource.

You tin can calibration fashion faster with larger multifamily and hire professional managers to run the 24-hour interval to solar day as you don't want to have that on.

It'due south non a affair of units under one roof it's virtually diversification. Your spreading take a chance over many units With smaller units and single family as y'all know i bad tenant or extended vacancy tin impale the returns and put you lot in the hole fast. Big multi is a hedge confronting those issues.

Most markets are nevertheless under supplied so new inventory will not exist a factor in nearly markets. That being said you tin hedge new inventory pressure by researching the markets you want to invest in and find out how many units are in the pipeline. Also people will by and large non go through the hassle and expense of moving merely to be in a new circuitous unless there'southward a really good reason then your competition will be for new renters when you lot turn over units so if you are buying right you will be able to go along your rents below the new structure production.

Lesser line run the numbers to see what produces the highest and best return on your fourth dimension and money and let that guide you.

Danny Randazzo Pro

Apartment Syndicator
Charleston, SC

Replied Nov 14 2019, 14:56

@Steve Corder you definitely demand to scale up. You could try to sell your current assets as a portfolio deal and 1031 into a larger bargain or sell individually but going bigger is easier from a belongings mangement and asset direction perspective

Cory Carlson Premium

Real Estate Broker
Oregon

Replied Nov 14 2019, 15:04

Steve,

You are describing the precise niche i work in. Consolidating your equity position to reposition your portfolio to one that scales up enough to both increment your returns and capital/equity growth. By and large, with appreciation and pay down over fourth dimension on real estate investment your returns based on the invested equity position goes down (per the math) with significant appreciation which in my market we have seen. For example, you bought a duplex for $250,000 and put 25% (62,500) downwardly. That same duplex today is worth $400,000 X amount of years later. Combining your pay downwardly on your loan and appreciation of $150,000 you need to ask yourself would you buy that aforementioned duplex with $200,000 downwardly (adding 50k for pay downwardly for illustration). Likely no if you are using leverage as a TOOL.
To realize those returns you either have to sell or refi which appears to be the position you are in. By consolidating your debts on the SFH backdrop and even the plex's and moving into larger multifamily or commercial it comes down to the analysis. Quantify your current position, and run a scenario where you sell 10 of them and reallocate that coin into a larger apartment. The beauty of the larger multifamily (pregnant larger than what you have, every bit that'southward subjective) is the property direction. Sure, in that location are horror stories only this is where the due diligence comes into play. You motion into a function that consists of managing the manager.

I would exchange out of several properties at once. Please rent a professional to do this, equally there are so many variables. I am currently exchanging out of 2 clients SFH and into approximately $1,500,000 multifamily and it will improve his cashflow by $20,000+ (five.0% + or -) yr 1.

Steve Corder

Rental Property Investor
Hickory, NC

Replied Nov 14 2019, 15:xiii

@Cameron Tope

Good insight. Cheers.

Steve Corder

Rental Property Investor
Hickory, NC

Replied November 14 2019, xv:13

Steve Corder

Rental Property Investor
Hickory, NC

Replied November 14 2019, 15:xv

@Cory Carlson

Something to retrieve nigh.

Thanks

Steve Corder

Rental Holding Investor
Hickory, NC

Replied November fourteen 2019, fifteen:16

Taylor L. Pro

Syndication Investor
Richmond, VA

Taylor Fifty. Pro

Syndication Investor
Richmond, VA

Replied November 14 2019, sixteen:23

Sell and scale! Peradventure get-go by selling x and buying a 30 unit. Then go a fleck bigger and beginning raising money if you desire. Having more units in 1 place will help you lot from an economic system of scale standpoint, undoubtedly.

Chris Salerno

Rental Property Investor
Charlotte NC

Replied November 14 2019, 17:11

Originally posted by @Steve Corder:
I currently accept 39 units nearly half multi family have a unmarried family. I take debated whether to consider "trading upwardly" to larger multi family backdrop. Good idea or bad? How would you time the auction of multiple other units to buy a larger unit if yous think this is a good idea. Cheers

Steve, Congratulations on having 39 units. If I were you I would sell the unmarried-family and identify it into large Multi-Family. The number is a lot better when information technology comes to Multi-Family. Depending on the deal your return will be a lot larger than investing in single-family.

Good luck and looking forward to your success.

Cameron Tope Pro

Property Manager
Katy, TX

Replied Nov 15 2019, 07:20

Originally posted by @Greg Dickerson:

@Steve Corder @Cameron Tope a lot of this depends on the numbers, your comfort level and your resources.

You can scale way faster with larger multifamily and hire professional person managers to run the day to day as you don't want to take that on.

It's not a affair of units under one roof it'due south almost diversification. Your spreading risk over many units With smaller units and unmarried family every bit you know one bad tenant or extended vacancy can kill the returns and put you lot in the hole fast. Large multi is a hedge against those issues.

About markets are still nether supplied so new inventory will not be a factor in almost markets. That being said you lot can hedge new inventory force per unit area by researching the markets yous want to invest in and find out how many units are in the pipeline. Besides people volition generally not get through the hassle and expense of moving just to be in a new circuitous unless in that location's a really proficient reason and then your competition will be for new renters when y'all turn over units so if you are buying correct you volition exist able to keep your rents below the new construction product.

Bottom line run the numbers to see what produces the highest and all-time render on your time and money and allow that guide you.

I agree with Greg on a lot of things but not the above.

Yes, you can hire a professional property manager to handle the complex but yous still have to manage your property manager.

Purchasing a large multi-unit is the exact opposite of diversification. During hurricane Harvey in that location were landlords with i or two properties that flooded out of there xxx SFR portfolio. What would happen if your one large multi-unit flooded? Bye bye greenbacks flow and get in line for your insurance payments.

It's easy to brand the numbers look great on a large multi-unit, I see "guru's" do it all the time. Increase the cashflow $50/mo per unit and VOILA you lot just make $200,000 based on current cap rates. What they forget to tell you if what if your rents fall $50/mo per unit? What happens to your property value then? Is this where you desire to be in a marketplace correction?

With SFRs you can sell to whatsoever homeowner that can authorize, it's not dependent on the cashflow. If the property doesn't cashflow how you want it to anymore and then sell it to a homeowner.

Hope that helps. Best of luck!

Greg Dickerson

Programmer
Charlottesville, VA

Replied November 20 2019, 08:08

Originally posted by @Cameron Tope:

Originally posted past @Greg Dickerson:

@Steve Corder @Cameron Tope a lot of this depends on the numbers, your condolement level and your resources.

Y'all can calibration fashion faster with larger multifamily and hire professional person managers to run the day to solar day as you don't want to take that on.

It's non a matter of units under one roof it's almost diversification. Your spreading risk over many units With smaller units and single family as you know one bad tenant or extended vacancy tin kill the returns and put you in the pigsty fast. Large multi is a hedge against those issues.

Nearly markets are however under supplied and so new inventory will not be a factor in about markets. That existence said you can hedge new inventory pressure by researching the markets you want to invest in and discover out how many units are in the pipeline. Also people will generally non go through the hassle and expense of moving just to exist in a new complex unless there'due south a really good reason so your competition will exist for new renters when you turn over units then if you are buying right y'all will be able to keep your rents below the new construction production.

Bottom line run the numbers to see what produces the highest and all-time return on your time and money and allow that guide y'all.

I concord with Greg on a lot of things but not the higher up.

Yeah, you can hire a professional person property manager to handle the complex merely you withal have to manage your belongings manager.

Purchasing a large multi-unit is the exact opposite of diversification. During hurricane Harvey in that location were landlords with one or 2 properties that flooded out of there thirty SFR portfolio. What would happen if your 1 large multi-unit flooded? Adieu bye cash menstruum and go in line for your insurance payments.

It's easy to brand the numbers look corking on a big multi-unit of measurement, I see "guru's" exercise it all the time. Increment the cashflow $50/mo per unit and VOILA you merely make $200,000 based on current cap rates. What they forget to tell you if what if your rents fall $l/mo per unit? What happens to your property value then? Is this where you desire to be in a market correction?

With SFRs yous tin sell to any homeowner that can qualify, information technology'south not dependent on the cashflow. If the property doesn't cashflow how you want it to anymore then sell it to a homeowner.

Promise that helps. Best of luck!

You lot really tin can't compare the two in this context. You only can non scale SFH as fast or equally efficiently equally yous can with multifamily. Besides the likelihood of losing all your income from all your units at one time on a multifamily is pretty slim but possible as we take seen with fires and inundation decumbent areas equally of late. You can likewise lose SFH to the aforementioned natural disasters. The solution is not to buy in an area that could flood or is prone to burn down. Also you tin build a portfolio of 30 multifamily backdrop just similar you can with SFH and achieve diversification across markets as well.

Also yous can't always sell a SFH for a profit equally you know. It'due south just non the aforementioned conversation at all.

Cameron Tope Pro

Property Managing director
Katy, TX

Replied Nov 28 2019, 07:29

Originally posted by @Greg Dickerson:

Originally posted by @Cameron Tope:

Originally posted past @Greg Dickerson:

@Steve Corder @Cameron Tope a lot of this depends on the numbers, your condolement level and your resources.

You can scale way faster with larger multifamily and hire professional person managers to run the twenty-four hours to day every bit you don't want to take that on.

It'southward not a matter of units under ane roof information technology'south virtually diversification. Your spreading run a risk over many units With smaller units and single family as you lot know one bad tenant or extended vacancy tin impale the returns and put y'all in the hole fast. Large multi is a hedge against those issues.

Most markets are still under supplied and then new inventory will not be a cistron in most markets. That being said you can hedge new inventory pressure by researching the markets you desire to invest in and find out how many units are in the pipeline. Also people will generally not go through the hassle and expense of moving just to exist in a new circuitous unless there'due south a really good reason so your competition volition be for new renters when you lot turn over units so if yous are buying correct you lot will be able to keep your rents beneath the new construction production.

Lesser line run the numbers to encounter what produces the highest and best return on your time and coin and let that guide yous.

I agree with Greg on a lot of things simply non the to a higher place.

Aye, you can hire a professional person property manager to handle the complex but you lot still have to manage your property managing director.

Purchasing a large multi-unit is the exact reverse of diversification. During hurricane Harvey there were landlords with 1 or two properties that flooded out of in that location xxx SFR portfolio. What would happen if your one big multi-unit flooded? Bye bye cash period and make it line for your insurance payments.

It's easy to make the numbers look bully on a large multi-unit, I meet "guru's" exercise information technology all the time. Increase the cashflow $l/mo per unit of measurement and VOILA y'all just make $200,000 based on current cap rates. What they forget to tell you if what if your rents fall $50/mo per unit? What happens to your holding value and so? Is this where you desire to be in a market correction?

With SFRs you can sell to whatsoever homeowner that can qualify, it's non dependent on the cashflow. If the property doesn't cashflow how you lot want it to anymore then sell information technology to a homeowner.

Hope that helps. All-time of luck!

You actually can't compare the two in this context. You simply can not scale SFH as fast or as efficiently as you can with multifamily. Also the likelihood of losing all your income from all your units at once on a multifamily is pretty slim but possible as nosotros take seen with fires and flood prone areas as of late. You can also lose SFH to the same natural disasters. The solution is non to purchase in an surface area that could alluvion or is prone to burn down. Besides yous can build a portfolio of 30 multifamily properties just similar you tin can with SFH and accomplish diversification across markets every bit well.

Also y'all can't always sell a SFH for a turn a profit equally you know. It's only not the same conversation at all.

Greg, I agree with yous - multi-family can be a great investment if managed properly. I think you lot would agree that SFRs and big multi-families are similar but differently run businesses.

I simply wanted to emphasize that they are different businesses and information technology's not always an easy jump from SFRs to big multi-family unit.

I e'er appreciate your insights on the forums.

Cheers for the discussion!

Replied Nov 28 2019, xi:10

@Steve Corder

I have threescore doors, 48 beingness multifamily and can relate to where y'all are now. The render on leveraged multifamily is higher and looks prettier on newspaper but at that place are pros and cons to both.

I would put the math on the back burner for a minute and look at what your goals are.

My goal was to have 50k net cash menses without being overleveraged(75%+).

I rather have 39 units paid off than 150 units leveraged. Its hard paying off a 2+ million dollar mortgage as opposed to a 100-250k mtg on a sfr.

It really boils down to where youd like to be. I accept a property manager for my sfr and one for my multis so its the same corporeality of oversight for both. The multi take more attending manifestly.

What I did was 1031 3 houses (600k) into a 40 unit.

1031 1 house into 2 duplexes side past side and another business firm and some uppercase into two side past sode quadplexes.

I volition be keeping minimum x sfr thst are paid off. I dont care about IRR , coc , cap , dcsr bla bla at this point. Anything happens and I have cashflow and reserves to weather any market volatility or interest rate issue once refis are needed on the commercial belongings. I hope my point got across. English is my second language and then my grammar might exist a footling off.

Mark Allen

Existent Estate Investor/Broker
Irving, TX

Replied Nov 28 2019, 12:24

In that location are manifestly benefits with going "nether one roof" such as ease of management, ancillary income (laundry, parking, RUBS, etc), and others; in the same respect, there are disadvantages. I'd consider your current render on equity (cash catamenia subsequently debt service / electric current equity). If it's one-half dozen%, your equity is inefficient. In gild to avoid capital gains tax, you'd desire to sell in bulk, tap into that equity and 1031 exchange into an apartment community. I'm helping a few clients a year execute on this exact strategy in Dallas Ft. Worth (SFR to multifamily or multifamily to NNN). Unfortunately, in that location's not many commercial or residential real estate brokers or teams that are experienced with SFR portfolios and larger multifamily.

The other options is to greenbacks-out refi, pull out equity and put it to work. Best of luck!

Dave Foster Pro

Qualified Intermediary for 1031 Exchanges
St. Petersburg, FL

Dave Foster Pro

Qualified Intermediary for 1031 Exchanges
St. petersburg, FL

Replied November 29 2019, 07:39

@Javier D. Nicely done!!! I was just going to advise a like course to @Steve Corder. You can care for your portfolio like a work of fine art you lot've created. Sometimes you but want to tweak it a little to improve it. The 1031 exchange lets you transitiona your portfolio at volition bits at a fourth dimension which lessens take chances and keeps the essence of who you are as an investor.

Sometimes it'southward correct to erase the sail and get big in one fell swoop. Merely Javier's arroyo lets him increase ROI with much less risk. It doesn't mean y'all end up with the large MF if y'all want. Simply you transition to it letting the market speak to y'all and using the taxation deferral of the 1031 every bit he says you lot'll be pleased with the compounding results.

Chris Salerno

Rental Property Investor
Charlotte NC

Replied Nov 29 2019, 08:27

Originally posted by @Steve Corder:
I currently take 39 units about half multi family take a unmarried family. I have debated whether to consider "trading up" to larger multi family backdrop. Good idea or bad? How would you lot time the sale of multiple other units to buy a larger unit of measurement if you think this is a good idea. Thanks

Steve, Congratulation on growing a 39 unit portfolio. You have a couple of options in my opinion.

Y'all can refi the 39 units and with the refi ( depending on what the refi amount is) you can then deploy it in a larger belongings.

You can sell the 39 unit and 1031 the funds into a larger holding.

I think it would be best to showtime investing in larger backdrop. Numbers make sense, belongings management can be a lot easier compared to 39 units. When y'all resell the belongings you could become larger profits.

I am looking frontwards to your success. I am located in Charlotte so now too far from you.

meadowworeas1942.blogspot.com

Source: https://www.biggerpockets.com/forums/432/topics/774387-trade-up-to-bigger-multi-family

Trading Up From Single Family to Multi Family

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