Contacted by Different Investors

[Nir]

Hi All,

I was recently contacted by different investors who are interested in investing with me them being the passive investor me finding, managing etc.

My dilemma is should I work with all of them on one bigger deal like an apartment building or should I work with each investor separately buying smaller Plexes (3-4 units) with each?

Has anyone considered/had this dilemma? I guess on one hand there is the advantage to size - the more units you have under one roof the higher your total income is. On the other hand, one apartment building can be more complicated as more investors are involved in one deal. I know Mr. Thomas Beyer has a lot of experience doing exactly that. as usual it would be great to get his opinion as well as other investors who had to make a similar decision.

THANKS & REGARDS,
Neil

 

[Mitch Collins]

Hi Neil!

Do not make the mistake of assuming that because there is more units under a roof that it necessarily equates to higher cashflow. I had this same issue as an investor I dealt with wanted to get into larger multifamily properties, and I showed him how by investing the same amount of money into 5 properties as opposed to 1 multifamily unit, your total cash flow could be much higher.

However, it all depends on what your expertise is, and what area you are investing in. In my particular area single family homes, half duplexes and similar properties cash flow very well and it`s easy to make the case that if you can generate a cashflow of $500 per property, why not delve headlong into that? Especially if you intend to do your own management, it`s easier to manage a smaller number of tenants for the same cash flow.

Single family properties also have the advantage of being easier to sell if a JV partner ever wants out if you want to `cash in some of your chips`.

In any regard, there is a lot of things to think about when making this decision! The way I look at investing these days now is that if I want a certain amount of cash flow, I want to purchase properties that will;

1. Leave me with the smallest amount of tenants to generate this income (IE duplexes, suited houses, etc work well in my area - may be different in yours!). As I self manage everything, this is critical. As an investor, your REAL job is a property manager and you don`t want to take on more work than you need to create your income stream.

2. I want to be have the versatility to sell a portion of my portfolio if I (or another JV partner) want to realize some profit. This is much easier to attain with smaller residential units.

3. I want to be able to `farm` an area and make it a great place to live. We typically identify great spots in our area for cash flow, appreciation potential and good tenant profile - then we try to purchase as much property in those areas as we can. In doing this, we take great care to make each property look great, rent to great quality friendly clients that set the stage for a nice neighbourhood. When you have an influence over this, you make it more attractive for potential buyers of your property to live in the area.

Good luck with your decision - also don`t forget to ask your JV partners what they feel comfortable with, and analyze where you will get your biggest return on your money AND your time.

Hope that helps!

 

[Dan_Eisenhauer]

Mitch makes some very good points. Here is part of the other side of the coin:

1) You have only one roof, one furnace, etc to look after in an MF property.
2) When you have a vacancy in a SF home, you have 100% vacancy... 25% in a 4plex. With an MF property you have created you own Rental Pool, with all owners sharing in the income and expenses proportionally.
3) As a self-manager, you will have just one property to take care of, thus saving you time and money by not running from ppty to ppty.
4) If you go professional management at some point, it will be easier to find a PM for a larger building.
5) Your expenses per unit are less with a MF ppty, as a result of economies of scale. eg: Insurance will be less per unit.
6) IMHO headaches with MF are less.

Keep in mind that many investors start with SFH and progress to MF or even ICI properties as they grow. There is a reason for that progression. As an example, one of Halifax`s largest landlords, with some of the nicest and best known buildings. got his start as a "slum landlord". He now owns both residential and commercial real estate.

 

[Mitch Collins]

QUOTE (Dan_Eisenhauer @ Jun 21 2009, 05:07 PM) Mitch makes some very good points. Here is part of the other side of the coin:

1) You have only one roof, one furnace, etc to look after in an MF property.
2) When you have a vacancy in a SF home, you have 100% vacancy... 25% in a 4plex. With an MF property you have created you own Rental Pool, with all owners sharing in the income and expenses proportionally.
3) As a self-manager, you will have just one property to take care of, thus saving you time and money by not running from ppty to ppty.
4) If you go professional management at some point, it will be easier to find a PM for a larger building.
5) Your expenses per unit are less with a MF ppty, as a result of economies of scale. eg: Insurance will be less per unit.
6) IMHO headaches with MF are less.

Keep in mind that many investors start with SFH and progress to MF or even ICI properties as they grow. There is a reason for that progression. As an example, one of Halifax`s largest landlords, with some of the nicest and best known buildings. got his start as a "slum landlord". He now owns both residential and commercial real estate.

Great points!

I just listened to Greg Habstritt`s Commercial interview, and I am quite interested in that. I own a smaller mixed use apartment building (2 office centres and 7 residential units) and found it not too bad - but I am more interested now in getting into actual commercial use (non residential) properties.

The Triple Net lease is so attractive for so many reasons...this may be another avenue for you to consider, Neil!

Good luck

 

[terri]

QUOTE (MitchCollins @ Jun 21 2009, 10:11 PM) Great points!

I just listened to Greg Habstritt`s Commercial interview, and I am quite interested in that. I own a smaller mixed use apartment building (2 office centres and 7 residential units) and found it not too bad - but I am more interested now in getting into actual commercial use (non residential) properties.

The Triple Net lease is so attractive for so many reasons...this may be another avenue for you to consider, Neil!

Good luck

have you spoken with each potential investor about their goals and expectations? How much they have to invest, their timeline and what type of return they expect on a property?



Terri

 

[Nir]

Thank You Dan and Mitch for the Great input!

Terri, Yes I have the information I need from the investors. more important now is to better understand the investment that will best meet their goals... and mine.

I`m sure many other investors had or have the same dilemma. Therefore any additional input on the topic would be highly appreciated.
(although Dan did summarize really well many of the apt. build. advantages I was looking for/was hoping exist!)

Regards,
Neil