We have invested in real estate over the past 8 years here in California (Los Angeles area) so we have benefited by the booming market with a large gain of equity. Right now we have a few duplexes and several single family residencies (SFR).

I was thinking of selling one of the SFR homes and putting the money into an apartment building (4-12 units) I know that homes in Southern California have boomed in the past few years. Would now be a good time to cash out some of these SFRs and put the money into apartment buildings? My reasoning is based on an assumption that SFRs have been inflated a lot more than larger unit investments like apartment buildings. Also, I know that apartment building prices are usually based more on their net operating income than on CMAs which SFRs are usually based on. Is there a way to find out the selling price of SFRs vs Apartments (based on # of units)?

Details.
If we were to sell one of the SFRs we would do a 1031 exchange and avoid any taxing on the gain at the sales then put that equity into a 4-10 unit property.

What do you all think?

Thanks
Brian

You have to know your market. If you think single family homes have peaked then by all means do a 1031 exchange into apt buildings where you can spread the rent rate reduction risk that usually comes when home values go down.

Usually (in most areas of the US), SFHs are a play on appreciation, and multis are more a play on rents and less so on appreciation...but the nice thing about multis is that you can play both. Just remember that management is a different ball of wax with multis (due to different type of tenant) than SFH and is not for everyone.

Personally, with interest rates near all time lows and the fact that home values are at an all time high...I would absolutely be shifting my portfolio away from SFHs toward Multis in California. Where else is the market to go?

Question is, how much are the multis going for over there? :-)

Do you currently own any Multi-Unit properties?

Muti-Unit is the way to go. Your net rental income should be far superior.

But maybe look to stay under 4 units for lending purposes/rate advantages if financing is needed.

I not sure about your market, but the rental market in Sac is horrible. The apartments are so competitive it is hard to believe SFR or small apartments cover there mortgage. It may be different there. You may want to go out of state and buy some apartments, since you will need to hire a managing company anyway. give me an e-mail for any other questions
I'm licensed and currently in mortgages
mojojojo_1@hotmail.com

We have several other houses, 3 duplexes, and 2 triplexes. right now you can get a multi 8-16 units from 1-2 million. We would probably get about $350 equity after we sell this one house. We could probably take equity from our other houses/duplexes and still be earning positive cashflow from these. Especially if taking out money from out other houses gives us a lower interest rate compared to the rate on a multi family.

Xeno: heres an example of a multi i was looking at:
14 Units $1.7 million Built in 1986
Estimated gross income: $134182
Estimated net income: $87182
Estimated total expenses: $47000


Greg what is the average rate for a larger multi unit vs under 4 unit property? I know that commercial mortgages have higher rates, but by how much usually?

Chris I've thought of investing out of state, but i'm used to being able to drive to my properties. They are all within 10-15 miles of eachother. Out here rents are low for how much demand there is.

Anymore advice is appreciated. -Brian

You need to canvas similar apartment rental cost and fees and get a good feel for maintenance which will almost always significantly increase in larger multi units and with age and locations is always a very critical factor for several reasons including appreciation and the class renters you will have...

In many areas, Market Value Multifamily unit mortgages can not provide significant cash flow after debt servicing and other cost are added in. Rental rates have just not kept pace with Market Values and where significant competition exist it can drive you to negative cash flow FAST.

Know the type market you will be intering... Larger Multi's are not the same as 4&under and SFD homes. Different market and different clients and different sets of problems and procedures and often far more government requirements / restrictions and reporting.

You can only find your answer... After you run the numbers on the specific property.

One Caution... Don't become a motivated buyer... often I see in 1031's where a significant change in property types are in transition, buyers and agents get pressured to make the necessary time lines and find themselves becoming Motivated Buyers... BIG Mistake.

4 Unit and under qualifies for standard Fannie Mae/Freddy Mac rates.

Assuming 20% down payment on a Jumbo loan you are looking at around 5.75% with full documentation of income.

I have the ability to do commercial but choose not to.

So I cannot help but being curious of what a commercial loan rate would be. Any Idea's?