Multi unit vs single family

[Arthur Clark]

Hi BiggerPockets I will be investing in the Akron, Oh area. I am having an issue picking a strategy. My long term goal is to build a buy and hold portfolio. My issue is a lack of capital to get started. Option 1) Purchase a small owner occup. multi family 3 to 4 unit. I would continue to save and explore home flips to gain capital for additional properties. Option 2) 203k to renovate a distressed property. (Ugly home in nice area). Then I would pull out equity after a year to use as a down payment for a multi family. Is there a right or wrong answer to this? What would you do? I look forward to hearing your thoughts. Thanks!

[Sam Bates]

Arthur,

Since your long term goal is to create a buy and hold portfolio I would start with that strategy and stick to it. From your commit about option 1 it seems like you have adequate capital now to purchase a multifamily property so I don't think it makes sense to move away from this strategy. If you purchased a home with a 203K loan there are many variable that could that could change in the next 6 months to a year and if it has an adverse effect you might not be able to purchase a multifamily property then. 

If you can purchase a 5 unit property or larger I would recommend this route instead of a 3 to 4 unit property. I say this for two reasons. First, 5 unit properties and above are considered commercial units. The value of commercial units are based on NOI (net operating income) instead of how single family homes are valued. This allows you to create value (increase income and/or decrease expenses) when the market remains the same. The second reason is it is usually easier to get a loan for a commercial property than a SFH.