Starting with a SFR is a mistake - prove me wrong

[Cole Farrell]

Hey, Looking to start a good discussion for new investors. I see a lot of first-time investors told to start with a single-family rental. I find this to be a huge mistake and poor guidance. I believe anyone starting (buy and hold) should start with a multi (2+). Thoughts?

[Evan Polaski]

@Cole Farrell, I will bite.  For one, you can't really compare broad investment philosophies.  I can probably point to a 2-4 unit that performed better than a single family, and I can point to a my own single families that performed better than my duplex.  But, each has their own differences.

That being said, in the neighborhoods I invest in, duplexes and quads have appreciated slower than single family properties.  Again, not universally, but generally.  Given appreciation is typically where you are making most of your return in any real estate, having this additional appreciation helps create much higher returns.

Additionally, my single family tenants, typically stay a couple years longer than my duplex tenants.  Given this is where my major operating expenses fell (beyond taxes and insurance), keeping this cost lower, by average, helps my cash flow.

I invest in older neighborhoods, so the 2-4 unit properties, typically have single water meter, maybe single electric, and many have radiator heat with a single boiler. Therefore, it is common for LL to be responsible for heat and water, which can get very pricy in cold months, but the cost to change out boiler is nearly impossible to justify. You also have lawn and snow removal in multi's, where SFR tenant is responsible.

Finally, SFRs typically garner more rent than multi's, for same bed/bath/general size.  So those fixed costs, like calling a plumber or replacing a fridge, are going to cost more, as a percentage of your rent, to handle.  

So, is it a given that a duplex or quad is a better investment? No. Is it a given that a SFR is better? Also, no. It is case by case. And if you are looking at duplexes, you should also be looking at SFRs. They are effectively the same. You do not "learn more" with a duplex or quad that will help you get into 20+ units, then you can learn from a SFR, other than you will be forced to deal with more tenants, faster, which, I guess, is learning a lot about what owning property is like.