Single-family vs. multi-unit

[Ethan M.]

I was reading my REI book and pondering things and I realized that in general, single-family homes are for investors who do things like flipping, rehabbing, and other strategies that depend price appreciation. For buy-and-hold/cash flow investors, it's better to purchase a multi-unit dwelling.

Price of single family home is jacked up (relative to rental income potential) because families will pay more for a home for emotional reasons. Also, it's just more efficient to buy and maintain several rental units at once.

Is that more or less true or is it debatable? Comments/insights appreciated.

Ethan

[Kenneth LaVoie]

I started exactly two years ago, began with SFH for "safer" route to get feet wet. I am strictly buy and hold forever (unless the market heats up enough to make buying and holding less desirable than cashing out) After two years, my opinion is that SFH are a pain in the ***. The moment they're vacant, you have 100% vacancy, they are MUCH more expensive to rent, so you have fewer qualified prospects. This could just be my area. I'm in Central Maine where the media income is around 30k. I've heard others say they love SFHs - they have had 5-15 year renters. My opinion is that if you're looking for as quiet an experieince as possible, buy houses in halfway decent areas (lower mid class / mid class). Depspit the 50% rule, 2% rule, etc. etc. I've talked to many smart, rich people who've been very happy buying SFH for a slight discount and renting for 1% while the tenant pays everything.

Little tidbit of numbers geekery: I wanted to know what the rate of return was for simply having your mortage paid down by the tentant. This assumes "cash flow neutral" and does not take into account depreciation benefit, etc. It is independent of interest rate (ie. interest rate doesn't matter - as long as you're cash flow neutral, this calculation is relevant) -- buying a building with 25% down, 20 year term, cahs flow neutral (i.e. the tenants pay it down, not you) will net you a 7% return on your money. (i.e. if you put 25,000 into an investment, it has to earn 7% to give you 100,000 in 20 years, hence my conclusion) -- of course 7% isn't great, but I think it's pretty cool that you can break even cash flow wise and still earn 7% steadily as long as you hold for the entire 20 yeas.