First Investment - Single or Multi Family Home?

Question

I have $50k to invest with and I am looking into the Lehigh Valley/Allentown area. Looks like I can pick up single family homes for $50k or duplexes for $100k. I am comfortable with leveraging myself, but at the same time, paying all cash seems to make the closing process a lot easier. For a complete beginner who cares about getting higher returns, in my situation is there a clear winner for SFH vs MFH?

Brian H. · Answer

If you spend a lot of time on here reading in the forums and also sometime listening to some of the podcast I feel like you'll hear time and again that people highly recommend multifamily over single family . Granted, there are those that prefer the single-family over the multifamily and they have their arguments and reasons. The logic of multifamily over single family makes a lot more sense to me personally. You have one property to visit with multiple tenants on that one property. One property tax to pay. One Insurance bill for that one property. Multiple rims coming in for that one property. You could always house hack if you have a multi-family. One of the big reasons that makes a lot of sense to me is that if you have a single family and you're using that rent to pay that mortgage and then that house is sitting empty, how is that mortgage getting paid? If you have a Triplex, for example, and one of the three units is empty well then you at least have the other two units helping pay the mortgage and other bills associated with the property.I don't actually own any rental property myself yet and just closed on my first flip property today. But these are all things that I've heard that made a lot of sense to me personally. In the end you should do a lot more reading on here and kind of think about what makes the most sense for you.I would definitely Leverage. You can get a lot more property for the buck by leveraging. That could be the difference between a single-family home with one rent coming in or Triplex with three rounds coming in. But, you do have those on here that argue that it's better to just do all cash and never owe anyone any money. So, again, it comes down to what you're most comfortable with and what you think is best for your situation.

Justin Brown · Answer

Hey @Raymond Y. pumped you're looking to invest in Allentown! Paying all cash makes things a lot simpler for sure and sellers like that. You also have a lot of single family row homes that you can pick up around 50K that are in great shape. I helped a client sell a SFH last month that made great cash flow. Here it is contrasted with a duplex in bethlehem. SFH: 53K purchase price and 850 rent, After taxes, Insurance, management, maintenance, trash and vacancy your looking at 483 a month cash flow. 10% cash on cash return.https://www.biggerpockets.com/calculators/shared/799536/883374da-28f1-4c6c-8db3-66a54da2a19c MFH: 95K offer with 45% down probably could raise rents a little to get 1400/month After all the expenses plus the debt service you're looking at 528 a month cash flow with 12% cash on cashhttps://www.biggerpockets.com/calculators/shared/799536/92455a43-f803-4687-a155-214530dc54d1MFH: 95K offer with 20% down drops you to 401 a month cash flow, but you only used 26K giving you 18% cash on cash return leaving you with 24K to go buy another place... https://www.biggerpockets.com/calculators/shared/799536/37e0d7d1-2628-4c90-9978-7af38635110dDepends a lot on your goals. You could always pay cash on the first place, get things stable and then pull out a chunk of your money for the next one. Hope this helps!

Robert Schumacher · Answer

Raymond Y. I think it depends on your goal and what you really want from the real estate. Personally I like the multi family units. There is more work because you have more tenants but they generally cash flow better. I’m am interested in this because it will provide for retirement income. Our single family homes cash flow about $100 a month but they appreciate better. This will help us build a long term portfolio and still provide enough to make a Little now. Hope this help and if you have questions, let me know. Good Luck.

Stephen Kunen · Answer

Raymond, personally I would invest in multi families and leverage to get multiple properties instead of putting all the eggs in one basket. Alternatively, use the BRRRR strategy to rinse and repeat so that you can get the maximum out of your initial investment.

Justin Brown · Answer

@Brian H. congrats on closing on your first flip! How did it go? I think you're so right that it depends a lot on factors specific to each investor's comfort level. Problem I run into is most duplexes around here are going to require work and lazy landlords have long term tenants in with low rents. I also think of a multi family unit as having a multiplier or things to go wrong, two water heaters, two sets of people to chase for rents etc. But there's no arguing that if you leverage you will be able to get better cash flow.