Should I take Agents Advice?

Question

Hello BP!

I'm hoping to purchase my first rental property before July.  I've got my financing in order and I am ready to start making offers on properties.  I sort of made a decision to myself that I would get a SFH at least a 2/1 800sqft or larger.  Getting a SFH to me seems like the best option for a first property, should rent easily, get a little better cash flow since the rent is a little higher than multi-family units, and if need be should sell quicker if for some reason I need to unload it.

I spoke to an agent last night and she said that I would be better off getting a duplex.  I have considered that but since this is going to be my first property I don't know what challenges I will face in terms of existing tenants along with the normal process of being a landlord.  I agree with a duplex is better because you have two units under one roof and higher income.  But there are also the downsides such as what i mentioned above along with a higher payment per month, double appliances, and just larger space overall if something needs to be worked on.  I could definitely afford to get a duplex, but I would put a much larger portion of my money into that than a single family.  Duplexes are just over twice what a single family is.

Should I heed her advice and change my focus to a duplex or should I continue with the SFH just to get my feet under me? I would like to build a rental portfolio but I'm not sure if going "big" is the best way to get started.

Debbie Puckett · Answer

@Jared Baker here is one strategy:

Buy 3, sell 2 after 5 years, take equity to pay off 3rd. Repeat. If you can find 3 properties that are affordable and would be a good purchase market, hold on for 5 years, sell the 2 with appreciation that can be put into the 3rd to payoff, free and clear. Find someone that may own all 3 willing to make a deal for all 3. Financing may be able to do creative financing with a commercial loan. Good luck!

Ryan Evans · Answer

I'd focus more on the numbers rather than the learning curve. If you're going to learn the industry anyhow, you might as well just get into it. Sure it'll be harder at first, but you'll fail fast and might get a fourplex on the next one. You never know.

I started with a duplex, bought a couple more and am starting to buy singles, but they haven't been vastly different in terms of how complex they are to operate.

Michael Noto · Answer

@Jared Baker Based on your research and your current risk tolerance/situation you feel comfortable buying a single family. I would recommend sticking to your guns and trusting your research and your gut.

Frank Wong · Answer

Jared,

Buy what you want not what your agent is telling you.  I purchase SFRs and I love it and its the only thing I buy. People are overpaying for 2-4 units all over the place.  In your case, it's easy just look at the numbers.  1 duplex at $190k or 2 houses totaling $160k?  No-brainer run the numbers.

Jared Baker · Answer

@Kevin S. The agent was a recommendation from my mortgage company.  When I spoke with here she mentioned that she works a lot with investors, but did not mention if she invests herself.

Where I'm looking the price of a SFH is about $80k and the duplexes are around $190k, so they are a bit more expensive.  I'm thinking it might make more sense with the SFH.

Brit F. · Answer

@Jared Baker, don't unnecessarily constrain yourself based on the property type.  Objectively and holistically evaluate each property and make a fact-based decision.  I would generally discount the notion that 'duplexes are better than SFH' unless you wanted to house hack or the agent justified her opinion with some data for your market.

Kevin S. · Answer

@Jared Baker you're going to get people from both sides of the fence on this one, some people love SFH and some love multifamily. I personally started with a duplex because it allowed me to house-hack, and also because in my area they actually cash flow better. I wouldn't be concerned about "double appliances" to be honest, most will come with appliances and if something breaks down, you can always find fairly good condition used ones on places like craigslist inexpensively, and I make sure in my lease to state that things like washer/dryer/refrigerator are tenants responsibility to have repaired. Plus, your CapX for both is lower overall because they share a roof.

Do you know if your realtor is an investor? That would also tend to color how much I took their opinion on this matter into consideration. Good luck with your search!

David Sisson · Answer

Honestly, both are fine. I own one of each. I like the single family, because I can put almost all the day to day maintenance on the tenant (lawn mowing, snow removal). Less $ per unit to buy a duplex though.

Should I take Agents Advice?

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