First investment property - Single family vs. Multi family

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First investment property - Single family vs. Multi family

Tyler Brown
New York City, NY · Member since 2015 · 125 posts · 48 votes

I've been researching purchasing my first rental property in some low property values/low tax blue collar areas for a while now.  

One of the main things I'm trying to decide is if I should go for a SFH, or a 2-4 unit duplex/triplex/quad. I'm looking to maximize monthly cashflow, rather than counting on any appreciation.

My price point is in the $50k-$100k range.  There is no shortage of houses, both single and multi family, for this price, in need of minimal work, in the areas I'm looking at.  I'll be using a property management company, as well.

Off the top of my head, the most obvious reason to choose multi is the greater rental income. While a SFH may rent for, say, $1,000, each side of a duplex may go for $700. An extra $400 a month is nothing to scoff at.

Also with a multi, if one of your tenants move out, you've only lost half of your income, as opposed to all of it.

That being said, a SFH seems like it would potentially attract a little higher quality tenants. Also, I imagine that there is less turnover in tenants with a SFH vs. a duplex.

Also, with a SFH, the tenants are responsible for all of the utilities, while some MFHs have separate utilities, but many do not.

I'd like to any of your thoughts about a SFH vs MFH for a first time buyer, and if there's any big pro or con that I've overlooked, thanks!

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James Klafehn
Investor · Freeville, NY · Member since 2014 · 131 posts · 37 votes
10y

It sounds like you have the basics figured out and are on the right track.

Personally, I only go with multi family houses. That is what is normal in my area though. I have looked at investing in other states and in some cities people only want to live in single family houses and 3-4 unit houses are harder to find, they are almost taboo. 

As long as there are people in your market willing to stay in 3-4 unit houses, that's they way I would suggest. 3-4 streams of income and 1 roof, 1 foundation, 1 yard. As long as the house is nice and not in a rough area you will find good tenants. Filling the apartments with high end amenities like stainless appliances, wood flooring and quartz countertops will set you apart from the competition and will also get you the best tenants.

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  • James Klafehn
    Investor · Freeville, NY · Member since 2014 · 131 posts · 37 votes
    10y

    It sounds like you have the basics figured out and are on the right track.

    Personally, I only go with multi family houses. That is what is normal in my area though. I have looked at investing in other states and in some cities people only want to live in single family houses and 3-4 unit houses are harder to find, they are almost taboo. 

    As long as there are people in your market willing to stay in 3-4 unit houses, that's they way I would suggest. 3-4 streams of income and 1 roof, 1 foundation, 1 yard. As long as the house is nice and not in a rough area you will find good tenants. Filling the apartments with high end amenities like stainless appliances, wood flooring and quartz countertops will set you apart from the competition and will also get you the best tenants.

    2Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    I would not even consider buying a SFH in your situation. I would target multi units and only purchase one with separate utility meters. Landlords responsible for utilities quickly realise how easy it is for a bad tenant to drive their costs through the roof.

    Buy a multi with separate meters or do not buy at all.

    1Reply
  • Gerardo Dominguez
    Real Estate Agent · Chicago, IL · Member since 2015 · 238 posts · 101 votes
    10y

    @Tyler Brown All things being equal I think multi-families are a better investment than single family homes. The biggest pro, in my opinion, is that 1-4 unit multi-families open you up to using the BRRRR strategy. By doing that you'll lower your monthly living expenses and qualify for a lower interest rate and down payment; since it'll be considered a home purchase and not an investment in the eyes of the bank. A con would be that multifamilies are harder to unload should you decide you want to sell. SFR's are open to anybody. Multi-families are typically more appealing to investors than home owners. Keep us posted on your first investment. Good luck!!

    0Reply
  • Christos Philippou
    Wilmington, DE · Member since 2016 · 116 posts · 59 votes
    10y

    Now, what I am going to post might be specific to my area, but I'll give it a whirl. I was shopping around and house hunting for deal #2 and in the same boat as you. I was debating trying to go for a multi-family property or a SFH.

    When I was walking the houses, doing my research, etc., I noticed that the SFHs were the only thing in my price range that was in good condition and I could consider buying. I was looking anywhere between $75k-125. When I walked into a couple multi-family homes in that price range, they were in horrible shape. If I was going to purchase a multi-family, it was looking like I would have to fork over at least $150 to get a place in good shape.

    But you're in a really good position it sounds, lots of good research which is by far the most important thing in this industry; having a really solid plan.

    0Reply
  • Justin Fox
    Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes
    10y

    I would do MF because you have multiple tenants paying the PITI on one building. Definitely only get one that is separately metered for water/sewer and electric/gas.

    Renting a SFH is expensive but is preferred by larger families (2+ kids). More and more individuals and couples are looking for cheaper housing, MF is the answer.

    If you can actually purchase a metered quad for 100,000 and rent each room for 700+, do it. 

    0Reply
  • Tyler Brown
    OP
    New York City, NY · Member since 2015 · 125 posts · 48 votes
    10y

    Thanks for the advice!  I'll be focusing on multi families.

    0Reply
  • Reynald Jean
    fairless hills, PA · Member since 2016 · 47 posts · 8 votes
    10y

    i'm thinking of buying a FM as well,  but i'll be living in one of the unit unit so i can get my feet wet in the real estate business. i'm guessing the cash flow on the single family for more money especially it's in a good location...meaning great school, restaurant, etc.....

    did you use BRRRR calculator?

    0Reply
  • Anthony Angotti
    Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes
    10y

    @Tyler Brown

    Two things to consider here. One, small multi is nice because if you have one vacancy the other unit(s) will still be covering part or all of the mortgage. 

    Second, many families will be looking for SFH so it may get filled a little faster. Depends on the area though and I'm not familiar with yours to be honest.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y

    A lot of the considerations will be dependent on where you are looking and what kinds of properties. For example, a $100k MFR will attract lower-quality tenants than a $100k SFR in most markets. Especially if the MFR is 3-4 units...meaning $100k is an extremely cheap MFR. Whereas a $100k SFR is probably pretty nice depending on the market you are looking in. Tenant quality is key for any buy as tenants will make or break your investment.

    For general pros vs. cons of MFRs vs. SFRs, check out-

    https://www.biggerpockets.com/renewsblog/2014/12/2...

    Let me know if you need any help!

    I also assume you are buying outside of NYC considering the prices you mention....where are you looking? I'm in LA and also buy out-of-state.

    0Reply
  • Jay DeCima
    Redding, CA · Member since 2016 · 224 posts · 143 votes
    10y

    Tyler

    I posted this recently to a newbie:

    One question that I’m asked constantly: “Where can we find the kind of properties you talk about?”

    The most common alibi I hear is, “There’s no property in my home town like the ones you write about.” With very few exceptions, I must disagree. The proper­ties are there! You simply haven’t found them yet. There are several different reasons why you haven’t, however, I’ve found most folks simply haven’t been looking for them.

    Most investors I know tend to do the traditional kind of prop­erty searching. If they decide to be apartment owners, they look mostly at tradition apartment buildings. Single house investors generally drive through the ‘burbs’ in search of prey. Hardly anyone is goofy enough to buy 5 house on one lot or an old motor lodge. I’m going to suggest that you broaden your vision a bit. After all, non-traditional properties can be lots more fun-as well as more profitable.

    First of all, don’t panic. My kind of properties are almost always avail­able; you just haven’t found them yet. Finding the right properties,meaning the kind that will produce monthly cash flow and long-term profits, is one of the most important skills you must develop to enjoy any success in this business.

    With 40+ years and 200+ home rentals of experience, I have taught my students the following:

    • Ideally I am looking for groups of run down houses (or combo of houses, duplex, garage conversion, maybe a mobile or 2). These groups may have 5 to 15 units described above.
    • Almost alway will be located on older parts of town (not slums or suburbs).
    • 85%+ of my deals are with seller financing........Why? Banks won't finance ugly properties over 4 units. Investor sellers know this. If I sell, I take back the financing.
    • Because units are ugly and rents are low, when I clean and fix and raise the rents about 50% over 2 years (remember rents are under market at beginning).....I just about double the price of the property.
    • I don't suggest you buy out of state
    • I manage my tenants by mail. I developed this strategy years ago to save my sanity.

    Below is a sketch of what I teach:

      You must always keep in mind that finding profitable deals is our goal, not just finding lots of deals.
      Good luck.
      Fixer Jay DeCim
    1Reply
  • Tyler Brown
    OP
    New York City, NY · Member since 2015 · 125 posts · 48 votes
    10y

    @Ali Boone, I'm looking at cities in Eastern Pennsylvania, specifically right now Scranton has my interest.  It's only a 2 hour drive, and there are plenty of low cost/low tax blue collar homes.

    @Jay DeCima  I live in Manhattan.  Anywhere close to here is astronomical in price, and I have no interest in being a landlord in NYC, which is incredibly tenant friendly.  Evictions are typically a minimum of six months, and that's assuming you have a good lawyer and don't hit any bumps.  Even though it's "out of state", Pennsylvania is only a two hour drive and is a world of difference, in terms of both prices and laws, both being much more attractive.

    Also, in the next couple of years my wife and I will be looking at purchasing a home of our own, in the area of $500k, so I can't tie up a ton of capital in this investment property.

    1Reply
  • Jay DeCima
    Redding, CA · Member since 2016 · 224 posts · 143 votes
    10y

    Tyler

    Property 2 hours a way is fine.  Out west here properties are a longer distance away.

    Good luck.

    Fixer Jay DeCima

    0Reply
  • Sara Abernethy
    Investor · Hummelstown, PA · Member since 2016 · 70 posts · 28 votes
    10y
    The vacancy piece you mentioned is right on! I started with a SFH and when it was vacant, or I had someone not paying rent, I felt the pain. It actually kept me from investing further because I thought it too painful. But now that I've been learning more, I'm buying a two unit and looking for more!
    0Reply
  • Robert Niessen
    Furlong, PA · Member since 2016 · 22 posts · 3 votes
    10y

    As a newbie, I am wrestling with the same question of whether to go with a SFH or multi-unit for my first investment.

    0Reply
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