I started off with investing in commercial real estate mainly because I wanted to scale quickly and I'm looking to do some more acquisitions over the next year. I was thinking of going for a 6-10 unit situation, but as I run the numbers, SFH are looking like the way I should go from here. I know conventional wisdom says that multi's are more efficient, but I'm just not seeing the bang for the buck as I do on SFH's in my market. It's not hard at all to find 2% deals with SFH whereas that's impossible with multi's. I'm starting to think I should have a mixture of both. Here's the numbers on a place I'm looking at:

Rents ----------------13,800

Taxes-------------------1776

Insurance--------------1000

Vacancy & Repairs 2208

Net Income------------8816

Asking price is $ 49,500. This is a 3/1 Even at asking this is a 2.3% deal. I'd buy this cash, put a mortgage on it and then rinse and repeat. Which brings me to my question---how are you guys getting mortgages on properties like this? Is this loan size too small? I probably could put a HELOC on it, but I'd prefer something more permanent.

For those of you who own both SFH and MFH, which do you find easier to manage?

GKARL,

I find them to be 2 different markets. Some people want apts, (convenience, no yardwork, smaller SF...) some want houses (privacy, quiet, space, yard for kids and/or dog, garage, tired of hearing their neighbors flush...)

Our management is basically the same. (MUCH easier than a rooming house!)

Locally apts are getting more than houses.

Our homes with garages go first and for more money.

BRAD

I have a bunch of SFH in the same area not too far away from my residence. So managing and taking care of them isn't the end of the world.

On the other hand I had too many small apartment properties all over the place and management is a living nightmare.

The way around this is I've sold some 3, 4, 5, 8 and 10 unit's and purchased larger properties that are 16 plus units requiring an on site manager. The manager and show units for rent. Let contractors inside to do agreed upon work. Contact me when issues arrive. And the manager know's how to turn off water on vertical lines to isolate leaks.

That's a good price for the house. I start looking at 2%, and anything above that just sweetens the pot. At 2%, the property will return all of your cash to you in about 7 years, plus you still own the asset.

Like you, I have been trying to grow into multi-units, but it's been trickier. A lot of SFH owners are mom 'n pop land lords with a few units who are burned out and ready to practically give the things away, or they are owners who jst have a small house they can't take care of any more. Classic "don't wanters". They will sell at rock bottom "wholesale" prices. By contrast, I find that medium size apartment owners are more sophisticated and often have good cash flow. They'll sit and sit to get their asking price. The best deal I've found locally is barely 1.7%, and that's with LL paying ALL utilities! They've been on the market since June of this year and not one price reduction.

The value in multis-fam commercial is drive by the CapRate. Anything you do to lower expenses and/or raise income causes the value to raise. SFH's sell for whatever the neighborhood will bring. Even if I DOUBLE the rents on some of my little shacks...they sell for about the same. Weird, but that's how it goes.

The other challenge is for larger deals there are a lot of big money players out there ready with cash. Investor groups from the coasts and overseas have millions to invest in apartments and guys like you and me simply don't have the resources to compete. Those same investors don't want little onesie/twosie deals. They want 50+units at a time! Target the market of 10-20 units and you might have less bidding competition.

Small deals aren't as interesting to banks. Often the loan officers are paid a percentage or flat-rate commission based on the loan amount. If you were the loan officer, how excited would you be about earning a $250 commission for a $40K loan?

Btw, you probably know I'm a Dave Ramsey fan so the words "borrow money" make me want to barf...but if you're going to do it, what you're looking for is a commercial lender. Fannie/Freddie have a minimum loan amount I think....like $55,000 or so. I haven't looked into that world in awhile. Commercial banks will do those dinky little houses for you.

I have a few homes in that price range with small mortgages. My experience has been you won't be able to get a mortgage in an amount less than $80K.

The government has implemented consumer protections that limit the cost of obtaining the loan as a percentage of the loan amount. I have looked at refinancing several times in the last year and each time the threshold is tripped and the deal is a no go.

re: loan size, I've found it hard to get a mortgage when I've tried to get a mortgage for a $40k'ish house. The first time-- on our primary residence-- we tried getting a conventional mortgage from some of the big banks. The response was along the lines of, "This must be a scam. Houses don't sell for that cheap. It doesn't smell right. Sorry." We ended up getting a regular loan from one of the small, local banks, and that loan ended up getting sold off to 5/3 just like a mortgage might have.

Once, I had success with getting a loan against a paid-off house. But that was really annoying. The house was worth more than what I borrowed ("Please! Feel free to take more!" "No, this is all I need, thank you.") but they got to dictate what kind of insurance I needed to insure it with (the expensive kind!) and what company to buy it from, and I'd have to give annual reports on my personal income/all the biz holdings, not just the biz income related to the loan; and so on.

re: the mfh's, we've been wanting to send out roots into other economic markets, not just our little rural town. And a mfh would definitely make more sense for a long-distance ll. But we were nervous about exactly what happened in CS's thread-- you get a fire in one unit, and with sfh's, you just have one unit knocked out of commission; but if you get a fire in a mfh, you get 4 units (or 8, or 10, or however many) affected.

I've also found that the "source" of mfh's is much more limited. Around here, I can generally expect to pay $20k-$30k/unit for a basic starter mfh. ($50k+/unit for new build.) There is a very finite quantity available, and the sellers are far less likely to need to suddenly have an apartment building they don't need, and decide to go sell it. Most of the houses I buy solves someone else's headache... and there just don't seem to be any mfh owners in my territory who are in need of my help. :P

I guess living in the boonies & only working with small locally owned banks I don't have the problem with mortgage amount. If I find ANY decent listing in the $25K to $35K range for a little 2 bedroom shack I don't generally have to worry about financing.

I've gone through the same process, GKARL. The profits just aren't there for the multis. I keep looking, but I have yet to find a multi that is as profitable.

I think if you have a good team of a leasing agent/handyman/bookkeeper, the daily operations aren't much more difficult. It's possible that the maintenance costs are higher with a SFH, but then with multis you have to pay for yard care and snow removal, utilities for common areas, etc. Some say turnover is less with SFH. I have some SFH where the tenants have stayed a long time, and others that turn every year or two. So I can't speak to that. Probably depends on the tenant more than the property.

Robin, I find MFH can be profitable, but they not as profitable as SFH in my area. It's the interplay between higher rent from SFH and the shifting of all utilities to the tenant. In most multi's, the LL is on the hook for water and sewer. It depends on the numbers for both. If a SFH were to run $ 80,000 to $ 100,000, the rent one can get in my area won't run much more than one costing $ 50,000 and in that instance, a MFH is better. But if you're working with the scenario I posted, one can buy 4 sfh and cash flow more than you'd get with one fourplex in my area. I'm thinking whether one is better than the other from a profit standpoint is a function of local market conditions.

I like your thinking with multiple property niches......it will help you ride out an economic slow down if you are investing in only one area.

Yes, I think commercial is easier to finance as well. My credit union looks mostly at the numbers for the deal and doesn't mind secondary owner financing. Also, no formal limits on the number of loans. It's the one area local banks get to play in without competition from the big boys.

Yes, I think commercial is easier to finance as well. My credit union looks mostly at the numbers for the deal and doesn't mind secondary owner financing. Also, no formal limits on the number of loans. It's the one area local banks get to play in without competition from the big boys.

Yes, I think commercial is easier to finance as well. My credit union looks mostly at the numbers for the deal and doesn't mind secondary owner financing. Also, no formal limits on the number of loans. It's the one area local banks get to play in without competition from the big boys.

Excellent Request - more than happy to give you a quick outline

Trust come with Trustees. LLC come with mangers. You buy out these specific positions with up front cash. That puts you in a position where you are control these assets.

In order to get these places you will locking in the sales price using an option over a 3-5 year period. The sale of these places will be subject to all existing loans and liens on the property so you have to do your research.

On a sole member LLC, you modify the existing operating agreement into a multi member agreement. Your partner will no longer be responsible for day to day operations of the asset. You have created the frame work for the buy out of assets with little money down and no qualifying.