several single family, mid-large apartments, or small apartments... which is more ideal?

[REIGirl]

Hello All,

It seems my husband and I are quickly approaching a transition stage or at least a crossroads or juncture where we need to decide the next direction we should take in our real estate investing. We have been purchasing suited single family/duplex properties with our own money, however we are at that point where our debt to income ratio will likely not allow us to do that any (or for much) longer, so I am considering three different approaches:

1) do we use JV partners to continue to buy the suited single family homes?
2) do we use JV partners to purchase mid-large size apartment buildings?
3) do we buy small apartment buildings (6-8 units) using our own money/LOC?

I am leaning toward option three because we would not have to worry about our debt to income ratio and may be able to pull off such a purchase without a JV partner. Hubby is leaning toward option two because of bigger profits.

Cash flow is important to us to supplement our income, however which approach do you believe is more profitable and wise?

Thanks for your input

 

[Martin1968]

Hello,

Between nr 1 and 3, if you would be able to use your own money (LOC) to buy 6-8 suite buildings, you could surely do the same for nr 1. Accessing LOC money still comes with a payment each month and might mean any purchases you do for nr 1 and 3 might not give you the desired cash flow.

Have you thought about selling off 1 or some of your properties that have good equity in it? The money you freed up might supply you with the necessary cash to grow further. Often 1 step back can make you do 2 steps forward again.

When it comes to nr 2, as appealing as it is to invest in volume, will it give you enough desired cash flow, especially seeing you have to work with JV partners.

Maybe make a step in between, and look into 4 plexes first. Lots of advantages. Easier less demanding financing criteria. When sourcing the right 4 PLEX, i.e. All utilities separately metered and preferably corner style PLEX, and ofcourse depending on purchase price and in which market, you will have cash flow per apartment that beats apartment building cash flow most of the time. And if you can afford, buy 2 4 plexes (side by side) at the time.
Better then a 6-8 unit apartment building, I have done those calculations many times. I just can't get there (yet) on 6 and 8 suite buildings.

It's often said on these forums you have to have patience and be in it for the long run. If you grow steadily you might get to where you eventually wanna be.
All the best!

 

[REIGirl]

Thanks, for your reply! The only challenge with purchasing anything under six units is that it would be considered residential and our personal debt to income ratio would be considered which is about maxed out

 

[Matt Crowley]

I think if you have learned the basics of real estate investing it is time to go bigger, much bigger. I would begin actively searching for private equity real estate deals, starting with minimum $2- $3 million deal. To go from small investing to much larger is a big step and one of the biggest hurdles to overcome is learning how the reporting, cash flow, and profits ultimately trickle down to the investor.

There are a few investors on this site who have funds that are available to invest in which are worth reviewing. Choose a target IRR you want (example 8-12%) and start familiarizing yourself with available options.

Places to start looking, see the sort of deals in the marketplace: https://app.crowdstreet.com/properties/
(good to see the type of deals around but will need very, very thorough research on company and deal)

 

[Thomas Beyer]

I'd say with no track record in multi-family ( MF ) it is very tough ( not impossible but very tough ) to attract investors. Better to either sell a few houses or duplexes, or JV them to cash out your own equity. Then use that cash to buy 2-3 MF buildings, and then ( and only then ) JV them. That is how I got started almost 20 years ago.

Have you seen dentists advertise " root canal specials - 2 for 1 - very inexperienced but medical degree in progress " ?

Btw: due to low cap rates the return per $ invested ( or shall I say per $100,000 invested ) is not any bigger in MF vs duplexes, THs or SF. Just more efficient, or less time per $ and unlimited mortgage amount INdependent of personal income as the building qualifies for the mortgage not you personally.