Stocks vs real estate


#463

SFH vs MFH
Vacancy rate?
Liability exposure?
Need for attendant?
Capital appreciation?
Cost of maintenance & minor repairs?
Ease of re-financing?
Mortgage rate difference?
Rent control?


#464

Condos are a mistake. You have no control. The HOA could ban rentals and bankrupt you. You have the means step up to higher caps and bigger buildings.
I did it 20 years ago. It part of growing in the RE business.
The sfh appreciation needs to be cashed to realize the real profit. You can triple your net worth with strategic 1031s


#465

No way! My condos are real cash cows with cap rates well over 10! And in the few years I have purchased them, all their values have more than doubled. One almost tripled!!!

One major advantage of SFHs (including condos) over MF is that they are much more liquid and appreciate much faster. Cap rate could be a disadvantage but not really, if you are able to balance things out with ultra-cashflow positive condos!


#466

wuqijun, in any location, and at the same time, if you buy condo and multiplex (4-plex), the multifamily is winner in cash flow, appreciation and non-hassle (HOA).

Say, I have 4M now. Assume that I buy now this option:

  1. I buy 2M 4-plex at sunnyvale

  2. 500k four condos in same sunnyvale

For cash flow and appreciation, four plex is winner than condos. I can not provide proof as I do not have multiplex, but is easy to get the details using simple excel and current rents.

This is truth for last 20 - 30 years, and many times my realtor told me buy multiplexes in sunnyvale.

Apartments fetch more cash flow than multiplex.

That is the main reason Irvine Company is building multiple apartments in san jose made 15 Billion Net worth. Most of the new apartment complex are made by them with different LLCs, but a single holding company


#467

I very much doubt this conclusion.

Maybe more cashflow but definitely lower appreciation.


#468

Talk is free. From my 21 years experience in flipping condos in Singapore, I made 100 times cash on cash flipping them, very easy even a Secondary school kid can do it. Trump the return of landed property especially the prestigious GCBs. Can’t provide more details as tomato says I should be careful in sharing.


#469

Why are you listening to a millennial?


#470

Condo/SFH vs MFH is a continuum. You turn the knob to the left you get more appreciation less cashflow. You turn it to the right you get less appreciation more cashflow.

You can’t have something that’s better on both measures. If that’s the case everybody will be buying that, so it will inflate the price and depress return. Efficient market theory.

@hanera has been saying SV rent is flat for the last 2 years. MFH value is based on rent alone. It can’t be appreciating in the last 2 years, while SFH and condos have been surging ahead still. I don’t monitor MFH’s in SV but I do pay some attention to ones in SF. In SF many if not most have to drop their asking price.


#471

I agree with @manch here. Cashflow for sure would probably be better. Appreciation would likely be less. For those arguing multiplexes in good locations would appreciate more, the similarly located condos would have appreciated faster since the buyer pool is larger. I would assume that’s the reason many multiplex in SF/Oakland would kill to have condo conversions.


#472

Here’s one data point:

My ex-coworker friend owns a multi-family (3000 sqft 4-plex) in Sunnyvale. Bought it in 2015 for $1.7M.
Similar unit (3100 sqft 3-plex) next door sold for $2.2M recently.

Rent profile for the 3-plex: $2600, $2600, $3000

Cap rate: (8200*12 - 31460 - 4800) / 2.2M *100 = 3.25


#473

BIG NO. You feel free to excel work sheet case to case basis, you will realize the fact. Killer is HOA.

definitely lower appreciation. ==> I was also having such misconcept and hated buying multiplex, even though my realtor told me many times. I missed the boat, not buying many Cupertino+Sunnyvale multiplexes that were available at that time, once for all year 2008-2011 period. She showed me many and were available without bidding !

It was my mistake which you people are making it.

ELT1 is perfectly right.

Only one negative, look & feel and neighborhood will not be good as everywhere multiplex renters maintain the location.

Rest, it is a cash cow.


#474

Depends on the timeframe you look but I would guess that appreciation is still less in multifamily in the past few years. I’m sure you can find anecdotal data to back up either viewpoint. I’m not debating the value of multifamily (in fact I’m looking for one myself), but the reality is in your example above, it’s unlikely you would get 4 condos for the same price as a 4-plex. Maybe 3 if you’re lucky. Multiplexes win in cash flow as well as cost to buy, especially if you get it without having a bidding war. Given your example, IF you could get 4 like condos for the same price as a 4-plex in the same area, the condos would likely appreciate more later even with HOA expense. This is where multiplexes are powerful, you can get 4 units for the cost of 3 or less units at maybe only a 20% shave on rental income.


#475

FWIW: Here’s some data from wifey and I’s admittedly small sampling:

  • We have seen our multiplex appreciate on paper (who knows till you sell) based on comps only slightly slower then a SFH
  • We have good tenants in our multiplexes because of our locations and rents. I actually don’t see a difference between them and the tenants in my North San Jose TH. In both cases the tenants are far less headache them my multi-fam in Sacramento.
  • you can purchase more units with multi-fam for the same dollar then going the condo route and the rents are not that much different between a condo and a 2br/1ba multi-fam
  • You don’t have a HOA. as pointed out above, HOAs can shut down rentals real easy and tank your resale value. I have friends in condos in Cupertino who are stuck. HOA does not permit a new rental unless an existing unit stops renting. The inability to rent puts a negative price on their property

some additional commentary. I seriously believe housing stock moves together and stuff reverts to mean over the long arc. It’s not sustainable to maintain the kind of appreciation we have seen in SFH. You are going to get short bursts of appreciation, but a rising ride lifts all boats. Multiplexes are already discounted relative to SFH, but their % gains have been in lock step, so while it may feel like multiplexes are not appreciating as much in $ terms, if you look at how much you invest and what you get out of it, I believe the appreciation is there. The cherry on the top is cashflow. That said, I am fine if none of you buy multiplexes, there’s enough crazy bidding going on as is and we don’t need more competition :smile:


#476
  • vacancy rate: your risk is reduced here as you are amortizing vacancies over more units. Means a bit more work but you smooth out rent disruption if you spend the same amount of dollars on multi-fam vs a SFR
  • liability exposure: kind of the same when you are in the rental business
  • need for attendant: Depends on how many units. I believe in CA you need at least 12 units and then you are required to have someone on premise
  • capital appreciation: I have seen it appreciate in alignment with SFR (because multiplex is already discounted, so look at the % gains)
  • cost of maintenance & repair: lower actually. For example, i have 1 roof covering 4 units vs individual roofs if i have 4 SFR
  • ease of re-financing: If you have been a landlord for at least a year or two, it’s pretty straightforward. more paperwork, but i have never been denied financing.
  • mortgage rate difference: used to be higher, but there are now lenders focused on the market that can get you great deals (better then primary SFR!). e.g. my 3.625% on a 30 year jumbo from 2017. That did require some work (I could not use my rental income from the property in question to qualify and I had to hold some assets at the institution for at least 3 months), but anyone who is diversified could do it
  • rent control: what keeps me up at night. Hence why we don’t buy in any city with rent control (we avoid San Jose despite multi-fam being cheaper there because of rent control). Nothing can block out of control legislatures from introducing JCE even for SFR. and if Costa Hawkins gets thrown out, even SFR can be affected by rent control. If we assume worst case scenario is rent of control is going to happen across the board, more reason to buy multifam if you want to be in the rental business as you can ensure you are cashflow positive from day one and not left holding a dog

#477

Great insight @BA_lurker! A lot of the reasons above are why I’m interested in a multiplex. Did you ever get into duplexes before 4-plexes and above or did you go straight into multiplexes?


#478

Leaving aside my Sac boondoggle (where i did duplex, 4 plex and commercial and learned many things the hard way), in the south bay we were 4 plex from day one because wifey had better instincts. Much of what i relay on this forum is learnings from wifey (who is much smarter then me). We looked at duplex last year and couldn’t build enough buffer into the cashflow to protect against downturn, so we went 4-plex again. Duplex tend to price almost as much as SFR on $/sq foot (and more importantly $/door is higher for duplex then 4 plex which is higher then commercial). So hard to make cash flow positive as they are not going to get the rent in proportion to their price.


#479

15 units and above need an attendant. The best deals are 5 units and above. Harder to get financing and a lot less buyers. The best deals are value add. Are under market rent and need improvements.


#480

Come on. Let’s face it. Much easier to buy a SFH. Rent, fix or flip. Less capital requirement, more appreciation potential, more liquid, much better flip, much more desirable!!! What’s not to like? Only desirably of a MPLX is the cash flow but when you consider a SFH in a cheap area can generate much more cash flow than a MPLX in an expensive area, forget about it!


#481

Investors are going for yield desperately because of the current low-interest environment. Even with Fed rate hikes, interest rates are still historically low, so banging for yield ie. buying MF, seem like a good idea. I did briefly check MF many years ago, % increase of MF did increase faster than SFHs initially (guess is a kind of catch-up because they declined more than SFH in % term during the recession) before settling to similar % increase.


#482

Antioch homes also increased much faster initially than South Bay homes because they dived more during the recession. Which brings another benefit to SFHs in this debate: they can hold value much better than MPLXs. In the event of a recession, MPLXs lose more value.