50 homes vs 50-unit apartment Investment - Posted by james

Posted by Abdenour Achab on July 25, 2009 at 01:59:06:

Hi Bill,

Which states/counties do you invest in ? I guess you are going after the interest/penalty returns, not the properties. I used to buy liens in Oklahoma county (going after the properties), but they changed the Oklahoma law, and they no longer sell liens. I also bought liens, in the past, in Maryland and South Carolina (going after the interest).

50 homes vs 50-unit apartment Investment - Posted by james

Posted by james on July 16, 2009 at 24:29:27:

I just picked 50 as a random number. I have read some books and now are begin to think that owning a 50-unit apartment might not be as easy to operate profitably now in this market due to maintenance/turnover/vacancy/bad tenant driving away good ones etc… Investing in single family home portfolio and provided you know how to manage, might be better in terms tenants, turnover, liquidity etc. What do you think?

Can successful and non-successful apartment investors share tips on what works and what not? Same with investors who have big single family home portfolio. Which way to go ( I know the choice is based on one comfort level mostly)?

Now do like apartment in terms of bigger cash flow if you invest right. Many of small multi families in my areas are in foreclosure so I guess smaller apt might be easy to survive.

Re: 50 homes vs 50-unit apartment Investment - Posted by Tony P

Posted by Tony P on July 17, 2009 at 09:44:16:

I have definitely heard some great advice on the subject in these posts.
I wanted to bring up one important factor that hasn?t be touched on?

You might view this as a blatant sales pitch, but I know this to be true
and many people don’t.

Be mindful of the area you are working in. Many investors are making
the mistake of looking for the best solutions in their own hometown.
You can?t find something when it isn?t there.

Companies that provide property listings and services that are area
specific usually are providing the kind of support needed to overcome
a lot of the objections that have been raised on this subject. There
are many great companies out there. If you haven?t used a market
specific wholesale investment service like ours, you have been working
too hard for your success. (masonhill.com - This website is for sale! - masonhill Resources and Information.)

We work in specific markets that meet strict criteria to ensure clients
the best investment opportunity.

Re: 50 homes vs 50-unit apartment Investment - Posted by Frank Chin

Posted by Frank Chin on July 16, 2009 at 08:58:34:

What you do depends on your personal preferences, ability, and resources.

The other poster mentioned the option of flipping houses. Yes, you can do better financially, if you like meeting people, making deals all day long, driving around, sell it, go on to the next deal.

It depends on the area you’re in too. I’m in NYC, and typically people doing flips buy the whole property for cash, (do you have $500K laying around or know a friend who does?), then look for a buyer. Elsewhere, you can do a “no down” deal.

I wrestled with your problem when I started my RE career around 1980. I looked at apartment buildings between 25 and 100 units. I looked at 1,2,3 to 4 plexes. I wound up doing the 1-4 families.

There’s pros and cons in each option obviously. The number you picked, 50, is about the right number for hiring a building manager, with a part time handyman. Below this number, it is inefficient, and you’ll wind up doing the work yourself, and make do with uninsured part-timers.

I toyed with the idea of playing building manager for a building I would buy. Some friend I know has a son in law, who manages a small complex. She said he stays in his office all day, play on the internet, wait for tenants to call with a complaint, or renters looking to see a unit. If a repair needs to be done, he dispatches a handyman.

The question is, is this what you want to do?? Or are you the type that goes out and make deals. Another issue I confront in NYC, is many of the investors I know are foreign born, speak with a horrible accent, or you can’t understand them at all. Would these people want to run around explaining no money down deals?? I doubt doing flips are for this group.

The other problem is the risk factor. Areas changes, or it could be dependent on one industry, I almost bought some apartments near Homestead FL right before the big hurricane that blew away and the military base there. Before the hurricane, the sales rep mentioned how reliable it is that I can get the “military” renters.

The smaller properties gives you diversification. I got some in neighboring counties, and some out of state. In fact, at certain times, markets can be good in one place and terrible in another.

With smaller properties, you can sell them off piecemeal, and to people looking for a home to live in, even the 4-plexes. With a large apartment building, you’re looking at a tight fisted investor, with an eye on a certain “rate of return”.

Of course, sometimes there are anomalies. My dad owned a business across the street from a large 125 unit apartment building. In NYC, we had “rent control” and sometime around 1972, the controls were relaxed. Some investor bought the building for a few hundred thousand around 1970, the retired liquor store owner, with his dumb luck, rent control went off for new tenants, rents went up several fold, and sold it for a few million less than 10 years later.

I did well with my rentals, cash flowed on them all, and lucky enough to unload quite a number from 2005 to 2007 before the crash here.

Re: 50 homes vs 50-unit apartment Investment - Posted by Celeste-fl

Posted by Celeste-fl on July 16, 2009 at 06:56:33:

Buy 10 SFH for cash by flipping a few houses each year and forget about leverage.Less is more,10 paid off SfH in a few years is much better then 50 leverage for 30 years.

Re: 50 homes vs 50-unit apartment Investment - Posted by james

Posted by james on July 16, 2009 at 14:00:41:

Hi Frank,

I enjoyed your posting. For small unit 1-4, cash flow is very limited so how do one pick a good property? Many of them is my areas are REOs maybe b/c owners bought them 2-3 years when the market was peak with high mortgage. I’ve been getting mult-unit listing (duplex, 4-plex) in decent/ok areas that have been on market for a while. Sometimes several of them on the same street which is not a good sign.

Anyways for right now, it looks to me SFH and also ,with careful investigation, perhaps 2 or 4 units are my choice. Most bank now have minimum loan amount like 140K so I cannot buy cheaper homes which is creating some challenge, and high cost.

What are some tips that you are using to buy cash flow, and keep them cash flow?

Re: 50 homes vs 50-unit apartment Investment - Posted by Frank Chin

Posted by Frank Chin on July 17, 2009 at 05:35:19:


Cash flowing is not difficult at all. It depends on how you structure your portfolio, and as others has mentioned throughout this thread, how its managed.

First, it’s how much you paid for the property. When I started, my wife had worked as a real estate agent, and mentioned the “rule of 100”, meaning take a look at 100 houses first before you even make your deal.

I never heard of that rule back then, but read of it since, and some people even mentioned on this board. We spent each weekend, making ourselves look at 4 to 6 properties, averaging 20/month, so in the period of 5 to 6 months, we have in fact looked at 100 places.

The first 3 properties we bought averaged 70% of FMV, for 2 of them, the owners were not in distress and they were in good areas. In one case, it started as a misprint of the price in the newspaper. Then it was compounded by the inability of the agent to show the place because the owners were never in. Finally, the agent was deperate, her listing was going to expire in a week, and as it turned out, she priced in over 30K into the price as her commission, and asked if we will consider going to contract and she’ll just price the house at 2K over what the owners wanted.

As an aside on the above deal, it doesn’t pay to be greedy sometimes. The agent got the bottom line the owners would accept (180K), then added in her commission, the 30K, bringing it to $210K. But unfortunately, her office messed up, and put the price of $180K in the “ad” instead of the grossed up amount, including her commission. Now flukes like this doesn’t happen every day, but I since found that the more deals you look at, the more flukes you’ll find.

Another big factor in cash flow is how much CASH you put into a deal. I know it’s heresy to say this on a “creative” real estate board, where NO down is prized, but it doesn’t take a math genius to figure out the more you put down, the more you’ll cash flow.

In the above deal, this was back in the early 1980’s, and the deal was inked for 180K, and we were going to put 40K into it. At the time, my mom-in-law had another 40K, and looking to do another deal. In the early 80’s interest rates were over 12%, and at 40K down, it was not going to cash flow much initially. What was done was she came into the deal, and we put 80K down on a 180K deal.

Did it cash flow with 80K down on a 180K deal? Certainly did. Interest rates came down from the early 80’s to 1990, and after two refi’s where we took no cash out (actually banks were reluctant to do big cashouts then), we got a rate of 7% (down from 12), and bought her half out.

As others have pointed out, another big factor is management, and through the years, in the local area, I managed them myself. Tenant screening services came into being in the late 1980’s, and prior to that, I took tenant applications, and sent them to a “private investigator” who charged me $75.00 each to do a credit and background report.

Tenant screening service would do a check for a fraction of that nowadays.

Many deadbeat tenants then figure owners of 1-3 family houses don’t do credit checks, and back then, couldn’t. Only large management companies with credit bureau accesss did them. When the deadbeats saw the 2 page application, figured I’ll do a credit check, most high tailed it out of there.

Finally, repair and maintenance. If you buy a 50 year old house where the last onwer is negligent on maintenance, repairs will eat you up alive. My plumber told me that generally, the entire plumbing system should be replaced, starting around 50 years, and usually no more tha 60 years. I bought one place when it was 30 years old, annd finally sold it when it was over 55 years, because I had to keep cutting open walls to repair leaks, and patching them back.

The place I bought at 180K I mentioned above was a little over 20 years old when I bought it. When I had it for 20 years, started having problems with sporadic electric service, as it turned out, when a heavy truck rumbled by, the elctric would go out. Turned out everything in the service entrance was rusted out, and it’s replacement also included an upgrade in service from 2 phase 100 amps to 3 phase 200 amps, at a cost of several thousand dollars.

One poster mentioned in a thread below in answer to someone complaining about high repair costs, most of this can be avoided buying a house less than 10 years old.

I believe I covered most of the issues involved in allowing houses to cash flow, namely:

  • Buy right
  • Good down payment (or small mortgage)
  • Good management
  • Good handle on repair and maintenance

Re: 50 homes vs 50-unit apartment Investment - Posted by Bill H

Posted by Bill H on July 16, 2009 at 18:06:47:

I agree with Jimmy 110 (YEP one hundred ten percent) percent that management is the absolute key.

A good one is worth their weight in GOLD…a lousy one can foul things up worse than you can imagine.

I am now out of the rental business. We sold our last building, a 110 unit in CA that was throwing off about $500K per year in positive cash.

Why did we sell. Our management team, who also was a partner and our CPA read the signs, saw the market collasping and said it was time to get out.

Had others say we were NUTS to sell. We did and could probably buy the building back if we wanted it for about half to two-thirds what we sold it for.

If you get into rental in a big way…LOOK long and hard and find a GOOD manager…they are worth their weight in GOLD.

Good luck in whatever you decide.

Bill H

Re: 50 homes vs 50-unit apartment Investment - Posted by james

Posted by james on July 16, 2009 at 19:09:01:

btw I am So CA. What area is your apt in?

Re: 50 homes vs 50-unit apartment Investment - Posted by james

Posted by james on July 16, 2009 at 19:07:41:

Nice to meet to Bill. Congrats on your success and the right timing to sell(not to be too greedy :)). For an beginner, what good advise can you give on apt investment of what to do and what to avoid, how to look and evaluate deals? When is a good time to buy again, perhaps later this year, and next as vacancy and unemployment is high. Would you recommend C class as a start as A/B are more expensive to acquire but easier to manage? How do you spot good property manager and their quality?

Re: 50 homes vs 50-unit apartment Investment - Posted by Bill H

Posted by Bill H on July 16, 2009 at 20:10:18:


Jimmy gave you some good advice.

Read my post again…I am NO longer in the rental business.

I had started doing tax sales before we sold the building and have continued.

Much easier, work few days per year, make very nice $$$. travel and do not worry about stopped up toilets, bum check, bad tenants, lousy managers, property dmanage, evictions, etc.

As Jimmy will tell you most successful investors go from sticks and bricks to paper.

Good Luck,
Bill H

tax / lien sales - Posted by JAMES

Posted by JAMES on July 16, 2009 at 20:57:26:

So you go to tax lien sales and auctions to bid?

Re: tax / lien sales - Posted by Bill H

Posted by Bill H on July 16, 2009 at 21:46:00: