When would you move up into 5-20 unit buildings vs 4plexes?
How should a beginner approach buying a 10 unit complex vs just 2-3 more 4plexes?

I have 3 SFH and a 4plex but have my eye on some larger (10-12 unit) property.

But I don’t know what I don’t know.

Can you give any guidance?
[{"id": "hixnnnw", "text": "Commercial financing is different than residential. That's the biggest change. Most lenders will require larger down payment and the loan might be amortized 25 years but have a balloon payment due and end of year 5. That's just an example but speak to commercial lender.", "replies": [{"id": "hixvubc", "text": "Nothing wrong with looking to move up. The lending aspect is completely different. Another aspect will be management. You may want to consider hiring a company to help manage and lease the spaces.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hiy39zl", "text": "It might be easier to get the 5+ units, but likely makes most sense to develop a good relationship with a local banker to help make them happen. Understanding the market, CAP rates, rents and rent potential, etc. and knowing that the property can support its self and meet the banks DSCR are all important to understand. If you want to talk about it at all, I\u2019m a multi-family investor and can help answer questions.", "replies": [{"id": "hiyv9wk", "text": "Thanks for the info. What size units do you buy? \n\nHow do you find them effectively?  \n\nI bought my 4plex just off of the MLS as it had been sitting awhile but am looking for bigger places.", "replies": [{"id": "hiywisf", "text": "I have generally been looking in the under 100 unit properties, because I\u2019m trying to avoid going against the bigger players that only do 100+, but do have people I can team up with to offer on them, and made an offer, but didn\u2019t get, a 240 unit complex a month ago. \n\nI have a 24 unit and 66 unit under contract. Generally, I prefer to be in the 40-80 range locally. I do have partners and we self manage what we have, and it\u2019s all local to us.\n\nI should add, develop relationships with brokers, do some work to find off market and start doing research and making phone calls. Go to you local REIA events. Drove for dollars, and just start driving neighborhoods and see if you can find something that could use some work and try to contact the owners. I have heard of people looking on Craigslist also, but have never done so myself, looking for properties that appear they could use some help.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hiydnom", "text": "It goes against common sense but 5 to say 60 units, are much harder to manage than a 100+ unit complex.  All the smaller guys want to go up incrementally but I think it's a mistake. \n\nThey're harder to manage.\n\nHarder to finance.\n\nHave more competition.\n\nNearly no economy of scale.", "replies": [{"id": "hiyg37d", "text": "Agree, 5-100 unit properties are a nightmare to manage - too big to do it on your own, too small to do it institutionally. You end up manual pricing everything and having a jacked expiration curve because you as an individual can\u2019t dynamic price (well I guess you could but would be a nightmare and yieldstar and Lro really doesn\u2019t work on buildings with less than 100 units)", "replies": [{"id": "hiygp12", "text": "Yes to all.\n\nThe only time I like them, is when they are within a few blocks from my bigger complexes and then I can manage them for essentially free and use the buying power of the bigger complexes.  And of course, to squash competition.", "replies": [], "depth": 3}], "depth": 2}, {"id": "hiyv8e4", "text": "Amen to all that.\n\nIf you also plan to raise equity, it's allot riskier to do small units too. There's not enough cash flow on small deals to cover the unexpected so you have to be spot on with your capex budget.\n\nIf you raise too much equity, you dilute returns. If you raise too little equity, cash call and that doesn't reflect well on your with your investors.\n\nIf you have the funds and go solo, not much of a concern - easily take funds from personal to fund shortfall without much scrutiny.\n\nOn the flip side, small deals can turn faster. I know a few that have been successful in the small value add space, but you have to be hands on like no other and self manage.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hiys7an", "text": "As other people have mentioned scale is a little tough in this size. I\u2019ll give my story as an example. \n\nI had a duplex and a 6 unit that I was self managing. PM was too expensive and my financing options were mediocre. \n\nI moved up to a 24 unit. Used the same bank as the other properties and they let me cross collateralize so I only put 10% down on a 80% LTV,  25 yr, 4%, 10 yr balloon. Financing options were much better.\n\nHad been speaking with a PM for a while and got into the middle of their pricing tier to sign up all the properties. I\u2019m negotiating on an 8 unit now to get me up to 50 units and into their best pricing options. \n\nAll this is to say, it may be better to go big once you get to the point of using more services.", "replies": [{"id": "hiyv13h", "text": "Great info. How much was a 24 unit complex?\n\nHow did you find it?", "replies": [], "depth": 2}], "depth": 1}, {"id": "hkacx22", "text": "Long-term apartment owner and investor. In California, I think the 10-16 unit is a sweet spot. If you have a good nearby property management, which will cost you 5 to 7% of gross. the 10 to 16 unit has economies of scale over 2-4 four Plexes and you don\u2019t need a on site resident manager if 16 units or less. Negatives are the commercial financing which others have noted and generally have a five-year balloon.  In theory, 10 to 16 unit buildings cost per unit should be less per unit than four Plexes although in California that\u2019s not always the case. It\u2019s hard to buy anything right now that makes sense on current rents with gross rent multiplier\u2019s around 12X or more and true caprate at 4% or so.", "replies": [{"id": "hkadbxj", "text": "Thanks for the input. I\u2019m trying to find something in that range close enough to self manage.", "replies": [], "depth": 2}], "depth": 1}]