Saturday, October 22, 2016

A Revelation - Kind of....

So our most recent purchase was our 5-unit apartment complex.  Yes, it had a couple of hiccups but it's gone further in making me realize that MFR's are the way to go.  But make no mistake, the learning we obtained while doing SFR's has been invaluable and we would not be where we are today without having gone through it.  It has allowed us to take chances, risks, and learn in a way we wouldn't have felt comfortable doing with bigger properties.

The SFR's that we've been dealing with have been sub-$100k purchases.  All things considered, we weren't really risking a lot there.  With the first few, our worst case was we had to float them personally.  With 3 of us, it would have been pretty easy to handle them not being rented.  As time moved on we had more money in the bank, other properties to help carry others that weren't being rented, etc.  We then figured out that the more of these we had, the less risk we seemed to take on.  When we got to 13 SFR's we realized that we were pretty well protected from complete disaster and the risk was about as low as it could possibly be.

So what do you do when the risk you have is way below your tolerance level?  You raise your risk of course back up near your tolerance level.  How?  Well, we decide to try our hand with a small apartment.  We purchased a 5-unit apartment complex which was over double the most expensive SFR we had ever bought.  We were raising our risk level back up a little bit.  I still don't believe we've come anywhere near our tolerance level yet.  3 years ago, a 30-50 unit apartment complex would have scared the %$#& out of us.  Now, I could see us more than doubling our unit count in our next purchase.  Will we?  Maybe. maybe not.  We would only do that if the deal was right.  No matter the risk level we have, we will never buy something that we don't deem a good deal.  If I ran across another SFR I could buy for $30k that I could rent out for $750/month, you better believe I'd do it.

So now, more and more every day, our attention is turning toward apartment buildings.  Our comfort level with risk has been raised to apartment complex's without fancy amenities.  A 50-unit complex that is just a few buildings at most and no real amenities (maybe there is a coke machine and a laundry room or something) is within our tolerance level for risk at this point.  It may mean we partner with someone to make a purchase like that, but the point is we feel comfortable with a purchase of that size now.  After a couple of those, perhaps we will feel comfortable with an apartment community.  Think 100+ units where you have on-site dedicated staff, amenities like a pool, tennis courts, main building with common areas, etc.  Right now, that type of property exceeds our tolerance level for risk, but 2-3 years from now, maybe not.  Our acceptance for risk certainly seems to change often based on the properties we purchase.

With that being said we are now looking for our next MFR.  Are we done with SFR's?  Maybe, maybe not.  If we are able to start purchasing apartments anywhere near as easily as we have SFR's, I believe so, otherwise I hate letting too much cash sit unused.  We may need to fill some gaps between purchases and that's an easy way to do it.  Hopefully over the next 6-12 months, I'm blogging about our 30-50 unit apartment complex that we've purchased.  Stay tuned, it could get interesting!  In the meantime, I should have plenty of other posts to keep you entertained :)

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