Should I sell off my single family portfolio to invest in more MFH/CRE?
Need some more experienced and smarter (not that hard) folks who have possible made this transition to weigh in if you could...

Should I sell my single family portfolio to invest in more MFH/CRE?

Quick rundown....
Still work a W2 job and own ~40 houses that are have been fully rehabbed and rented and perform really well in terms of cash flow/ROI. I manage these via a VA/call center.

I also own ~60 apartments (one medium sized complex and the other a smaller one). These have outsourced property management and have performed mediocre at best since owning them. The larger unit is a huge value add play, so that one should turnaround in the near future. 

The equity play is the biggest perceived value I have found as an advantage for multifamily. Also, if I self managed these, I know they would perform better, but these are management intensive.

I hate to drink the Kool-Aid, but I’m thinking about some/all single-family portfolio to sell (1031 exchange...tough to sell at once) invest in more multifamily or other forms of commercial real estate. I know this is what all the gurus say, but I am skeptical because of my current experiences so far.

Thoughts?
[{"id": "fj6glrr", "text": "First, congratulations. Not many people have achieved what you have. I am an owner of a medium sized portfolio of apartment units in a major metropolitan area. The way I like to think of the decision to buy and sell is as follows. 1) pretend you charge yourself a management fee. Now what is your roi? 2) what roi can you reasonably find in an asset right now? 3) if the roi is significantly higher than your answer for number 1 then an exchange may be worth it. 4) if the roi is the same or lower but still significantly higher than your mortgage rates then you may want to consider refinancing your portfolio to access cash to make new purchases 5) if the roi on new purchases is lower than your mortgage rates then you probably want to do what you are doing but not sell or refinance your assets.", "replies": [{"id": "fjalx55", "text": "Random question for you since it sounds like you have a decent CRE portfolio. Have you found any creative sources of revenue for your tenants/leases or is your cashflow essentially just rent?", "replies": [{"id": "fjanc1u", "text": "I do affordable housing (subsidized tenants) and most regulations prevent us from charging extra for things. If you have the means, separating the water out per unit can be pretty solid, especially if water bills are on the higher side. Sorry I don\u2019t have more for you.", "replies": [{"id": "fjatdzj", "text": "Its all good, this is helpful thanks for the insight !", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fj6gu6h", "text": "I think you are on the right track and while Multifamily can be a little more complex to manage it's also much more efficient and easier to scale compared to SFRs. Before managing yourself, unless operating a property management company is in your plan, I would fire your current PM company and try another.  That being said a major value add/reposition can take up to 3 years to fully stabilize - so mediocre performance in the first year or two is typical. \n\nBy the time your deals are stabilized you will see your work paying off with your increased NOI and new value.\n\nGurus aside, benchmark the top real estate investment companies - they don't go down to SFRs or small assets for a reason. It takes the same time and effort to do a small deal than a huge one. Do you want to deal with finding 50 deals, 50 closes, 50 roofs to fix, 50 addresses or one 50 unit building with one close, one roof, etc.\n\nNot to mention the non recourse financing available on larger multi-family projects is some of the best financing available in real estate. \n\nDo a portfolio sale and take advantage of record low rates to lock in a 10 year term on a nice Multifamily project.", "replies": [{"id": "fj7up0r", "text": "Thank you for the feedback", "replies": [], "depth": 2}, {"id": "fjaksio", "text": "&gt;Not to mention the non recourse financing available on larger multi-family projects is some of the best financing available in real estate.\n\nCan you expand on this a bit more or send me a source on it? I am trying to learn more. I am working for a development company now that is selling off its SFRs to invest in CRE, so any info I can get to better understand that game would be great.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fj6kqu9", "text": "It\u2019s pretty typical to go from SFR rental investing to MFR investing. The maintenance and management is less so they are more operational efficient, in theory. It also allows you to more effectively scale. You\u2019re following a well worn path blazed by many investors before you.\n\nHowever, the issues I see it are two fold. The basis of your SFR portfolio has probably appreciated significantly. While that\u2019s great, it causes two problems. One is in returns and the second is in exchange. \n\nThe first is that your returns from the SFR portfolio are likely much better than what you will receive from a MFR investment in today\u2019s cap rate environment. There\u2019s no way to avoid the lower return. You\u2019ll have to make peace with that. \n\nSecond, you\u2019ll want to 1031 and that can be complicated when selling multiple properties. Id suggested you first identify how much of your SFR portfolio you want to sell, contact brokers and have them provide opinions of value of closing time frame. You now know approx the value of the homes in aggregate and how long it will take them to sell. I\u2019d get them ready to list by performing the required maintenance and marketing material. Identify a MFR property and try to close on the MFR and then sell as many of the homes in the timeframe to reverse 1031 as you can. It seems to me, the harder challenge will be finding the right MFR property and not selling the SFR.", "replies": [{"id": "fj7usbp", "text": "Thank you for the feedback. I have thought about the reverse 1031 as well.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fj6m2md", "text": "Cash out refi on some of them.  Take that money and go after a Larger commercial/many multi-family instead. Let the paid off houses pay for everything bigger via a loan. Everything will be like cogs and keep it rolling for you.", "replies": [{"id": "fj6p9e7", "text": "Here comes the cash out refi crowd will solve all your problems!!!!!", "replies": [{"id": "fj6pfss", "text": "He asked for advice. Make his properties do the work for him is all I am saying.", "replies": [{"id": "fj6qj0o", "text": "I have already refi\u2019d the majority of these last year and sitting on the cash.", "replies": [{"id": "fj6r61l", "text": "Then I would find a place.that has cheap good properties with good cash flow. Keep what you have. Let them pay themself off. It's leverage you can use later. \n\nIf they are in high appreciation areas then if you are worried about a drop in value off them now. If the local economy is stable.or trending.upward hold. \n\nRemember real estate didn't drop 10% last week.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "fj6v2oa", "text": "It is a tried and true stategy.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fj6pcvt", "text": "What I didn\u2019t see in here is what are your goals. Your \u201cwhy\u201d. Are you looking to FIRE? Are you looking to get x/month in passive income? Without understanding what your goals are nobody can give good information.", "replies": [{"id": "fj6qywv", "text": "Well, I have written down goals of $100M in assets and $1M in net cash flow per year. \n\nLegacy wealth is the goal. I don\u2019t need my name on buildings or anything, but I want my great great great grandchildren (along with kiddos/wife as well currently) to benefit from my actions. \n\nYes, multi family/commercial will get me there faster, but I know a guy that I talk with a lot who has done this in the SFH space as well.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fj6sghs", "text": "Just a caution. If you're a slumlord by accident or intention, it's easier for your tenants to band together in multifamily buildings and bring you bad publicity like [what happened to an intentional slumlord in my town who conned people into giving him money to invest using fraudulent credentials](https://triad-city-beat.com/as-apartments-fall-into-disrepair-owner-moves-to-next-investment/).", "replies": [{"id": "fj6sycq", "text": "No slumlord here. I have a heart.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fj6tjne", "text": "Oh my god. Can you share your age and what market you\u2019re in? You are literally doing my dream life", "replies": [{"id": "fj6v44y", "text": "I am 37 and in a larger metropolitan area of Kentucky. Started after I was without a job for a year after being laid off during the 2008 recession with the help of \u201cRich Dad, Poor Dad\u201d and Dave Ramsey. Going from something to nothing is sometimes the best motivation.  \nIt\u2019s a lot of work at first, but you will find and develop processes to ease some of the pain.", "replies": [{"id": "fj6vkir", "text": "Wow. I am a year younger than you when you started. No debt, ~$50k in savings, making around $80k. Currently living at home. Any advice you could share on what you would\u2019ve done differently or what you\u2019d do in my situation?", "replies": [{"id": "fj7vcph", "text": "Just start... because 10 years go by really fast and you can either invest in that time period or sit idle. Sounds like you don\u2019t want to do the latter, so just pull the trigger on an investment. You will learn the ropes pretty quickly after that.", "replies": [], "depth": 4}], "depth": 3}, {"id": "fjam6mc", "text": "Thats awesome did you just jump into purchasing rental properties or what?", "replies": [{"id": "fjanf3d", "text": "Yes, with zero clue. I didn\u2019t know hardly anything. I don\u2019t think all the real estate websites/blogs were around like today. \n\nLike I said, you learn pretty fast in this game when your money\u2019s on the line.", "replies": [{"id": "fjatiwd", "text": "Thats fair, I am working for an RE development company now and looking at buying my own property now. Thanks for the insight and glad to see it worked out well for you", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fj6vvqa", "text": "SFR to multi?  What exactly does that mean? Are your SFR's in markets where you are getting $4-8 rents per sf or barely a dollar?  Will the multi's attract the same tenant base?  What is the NOI per sf on the SFR's and what will they be on the mutis?  Turnover and capex can eat you alive on multis and low rent SFRs.\n\nIt's gonna cost a lot to exchange, a lot, and you are going to lose flexibility.  With SFRs you can sell off one or two if needed.  I wouldn't do anything until I can answer those questions.", "replies": [{"id": "fj750tu", "text": "My market and  property class type are ~$1 rent/sqft. I found the tenant base in multi family behaves much different then in single-family\u2018s in terms of maintenance and payment reliability. In my single family portfolio I am able to operate rather efficiently with a 30 to 35% expense ratio, so I bring in 65-70% of my rents after expenses and before paying out my mortgage. \nWith property management on the apartments I have actually found that those numbers above are the inverse (65% operating expense ratio). \n\nBoth of these NOI figures/percentages include property taxes and insurance of course. \n\nAlways appreciate any insight.", "replies": [{"id": "fj7cpyb", "text": "Congrats on all your success. I agree that the tenant base in SFH is superior, with much longer average stays. There are also ultimately far more exit strategies, and your eggs aren\u2019t all in one basket. I don\u2019t agree with the poster that compares 50 SFH to a 50 unit apartment building. If the neighborhood your apartment building is in goes to shit, you\u2019re out fifty units. If it\u2019s a major economic down turn, you can only sell your apartment building to another investor, versus off loading to an emotional owner occupant. And hedge funds are heavily into SFH, although they haven\u2019t bought or managed intelligently. As someone that has managed hundreds of units in high rises and also a 2,600 house portfolio, I like managing the SFH rentals infinitely more.", "replies": [{"id": "fjna1nk", "text": "Thank you for the feedback. With understanding the management workload, do you care to disclose how the investors/owners compared in terms of financial reward/success with SFH vs. MFH from of those you managed?", "replies": [], "depth": 4}], "depth": 3}, {"id": "fj7e09l", "text": "As a former Realtor in NKY back in the 70's but an investor in N CA and Honolulu I don't see you reaching your goal in your market.  At a buck a sf the capex will eventually take all your cash flow.  I always look for rent growth and appreciation.  Over 40 years I've seen about 6% rent growth and 8-11% appreciation.  \n\nI'd be looking at areas like that.  What were rents 10-20-30 years ago.  Same for values.  Plus the problen with those low value properties is that it costs a fortune to access your equity.  I just cash out refi'd one property that I bought about 10 years ago for $500,000 that is now worth $1,000,000 and pulled out $700,000 for less than $4,000.  Think how hard that would be to do with your properties.", "replies": [{"id": "fj7i897", "text": "Thank you and I appreciate all the feedback. My houses are ~$135K a piece and I view those as their own \u201cmulti family\u201d unit. My larger apartment complex \u201cshould\u201d have ~$1M in equity once the turnaround is completed by the middle of this year, so I totally get that I need bigger/higher valued assets or more quantity and as you alluded, it will take a while going the quantity route.", "replies": [], "depth": 4}], "depth": 3}, {"id": "fj7o4iz", "text": "Your percentage estimations seems pretty accurate from my experience. Single-family Jones are easier to liquidate at a decent price if the market tanks. Liquidation of apartment buildings is much harder to sell.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fj710ig", "text": "Yes. CRE &gt; SFH for so many reasons. Wine every single time. \n\nSFH is like the stock market. It\u2019s for the average retail investor.", "replies": [], "depth": 1}, {"id": "fj7am1x", "text": "How come you work a w2 job? Just asking out of curiosity", "replies": [{"id": "fj7fw00", "text": "Security and financing (banks love it) mostly. I also have three young kiddos and my wife is a stay at home mom. And my single-family portfolio is not very management intensive.", "replies": [{"id": "fj7q79c", "text": "Got it. Thanks for the reply. I\u2019m not too familiar with single family investing, but is a portfolio the size of yours enough for a family of 5 to live off comfortably without either parent working?", "replies": [{"id": "fj89tba", "text": "Yes and no. Comfortably is different for some. I lost my job in the recession of 2008 and was out of work for a year...one whole year. That\u2019s a motivator that a lot of people don\u2019t get in life. Security, more so than comfortable, is the word I like to use. What\u2019s funny, my coworkers and friends pretty much have no clue what I do on the side. My parents thought it was a hobby until I told them one day how much some of my portfolio appraised for.", "replies": [{"id": "fj8a4c5", "text": "&gt;What\u2019s funny, my coworkers and friends pretty much have no clue what I do on the side. My parents thought it was a hobby until I told them one day how much some of my portfolio appraised for.\n\nHaha, badass. Congrats on the accomplishment! I hope to be in the same shoes in my hometown in the near future.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "fj8z31t", "text": "Do you have great health insurance for your whole family, but.    \nforgot  to mention it as a good reason to keep your W-2 deal?", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fj7siip", "text": "If you have access to decent deals that have some upside and don\u2019t mind making less for a few years sure do it. Make sure to sell off the portfolio before you look for the exchange properties as it will not be so simple to find 1 buyer for all at the value you want.", "replies": [{"id": "fj7ubej", "text": "Just a tough pill to swallow on paying the capital gains plus the depreciation recapture if I did sell the SFHs off individually. Not sure how to mitigate those. Any insights? I am not to fond of Opportunity Zones, which my CPA is all about.", "replies": [{"id": "fj7wo56", "text": "Call all of the CRE brokers in your area and try to sell your portfolio off in one package or in chunks. There are large outfits out there who like to buy SFH portfolios.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fj7wz0n", "text": "It\u2019s a tricky position to be in. I know another guy who has about 100 2 family homes he is planning to sell but he is selling them off 10 at a time so he can keep things manageable as far as finding the tight buyers and buying a few multi family buildings while the other Propertys hopefully continue to appreciate.  Oz funds are great but it\u2019s a 10+ year play so it really depends on your plans for the present and the future (30 years) 1031 exchange is a 1 year play. And you can refinance the property after a year and pull out 70% ltv maybe more. Personally I love 1031 exchanges. If your not a large owner with a large fund behind I think 1031x is your best play. Would love to chat further if you want pm me.", "replies": [], "depth": 1}, {"id": "fj7yjuj", "text": "Highly advise against that. Why would you want to deal with multiple brokers especially if your at your day job? Hire one company and let them deal with it.", "replies": [], "depth": 1}, {"id": "fqvji0n", "text": "You mind sharing the VA/call center you use and the workflow for handling the calls? I think this is the solution I need to manage my 48 SFH portfolio. Love the idea, would love to understand how you handle in a little more detail.", "replies": [], "depth": 1}]