I recently read through
The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges and was intrigued by the strategy he recommends: buy and sell, instead of buy and hold.
It's true that buy and hold can give you 10% to possibly 15% cash on cash return if you know what you're doing. In fact, we're probably going to get such returns on our real estate investments this year.
But what about buying and selling? We're looking at the numbers now, but it seems like we may be able to get 40% cash on cash return by investing a few thousand bucks into capital improvements. We just rehabbed a unit that went vacant on a shoestring budget (because we personally did the work) and if we contract out some bigger jobs, like redoing siding, getting an asphalt parking lot over the original concrete, and other stuff, we can really increase the resell value of the property.
Since most of our tenants are longer term, we're not going to be able to rehab their units and increase rent, especially after we already increased rent back in the spring.
Still, I am pretty sure with the work we've already done, and the work we're going to get done, we could easily net a 40% return on our investment, even after all closing costs and things like that. This is, clearly, better than the 15% ROI we'd get from holding.
The one big negative to a buy and sell strategy for multifamilies is that if you want to do it year in and year out, you have to keep going through the annoying and lengthy process of closings, getting tenants to sign new leases, getting them to realize that you can't be pushed around, et cetera. Even then, however, a buy and sell strategy is a part time job--and if it gets you $50k+ a year, and a 40+% ROI, it seems to me that it's worth it.
I know MMM prefers smaller scale real estate investment, particularly with single families, and that's a legitimate strategy as well. However, we have the money and are increasingly getting the experience and connections to make buy-and-sell a viable strategy.
So what do you think? Do any of you buy and sell multifamily properties? What are your thoughts on the general strategy? Are there any pitfalls I should look out for, or difficulties that I might not be aware of?
Thanks in advance!