Big Or Small?
Hi:
We are looking for some multi-family properties. I would like to get some input if at possible. We can qualify for about $500,000. Is it a better stratgy to go with bigger apartment units or go smaller units? Any information would be helpful.
tl sargent
Most places there is an advantage to buying more units regardless of their size. Many buyers are scared away from more than 4 or 6 units. There is a big price break per unit above 10 units.
As to whether you should be looking for three bedrooms or studios I personally always had better luck with studio and one bedroom units-- more single people with disposable income versus familys on tight budgets. But I know people who would argue that the bigger units tend to be more stable
I like 2/1's for rentals, but that's just me.
"Economy of Scales" is the term in real estate that is essencially "buying in bulk".
Imagine the difference between maintaining 25 Four plexes that are scattered around your city VS owning one complex with 100 units. You can standardize everything, there's little or no driving, you can have on-site maintenance and management personel, you get better rates when contractors bid jobs, etc.
In my opinion, bigger is better.....as long as you can handle it.
CommercialKing is right. Cap rates go up (hence prices go down per unit) with bigger properties.
Hi, would you mind explaining 'cap rates' please?
Thanks,
Chris
Curly,
Just read Hibbys article. It should help you, also read the comments for any clarification.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=467
Now for the down side! with 25 units spread around town if 1 area turns bad it only effectes the unit you have in that area but with a large multi unit if the area goes bad your hole unit is in trouble at one time
thank you for that link, most informative.
Chris