Risks associated with triplex vs. duplex?

Question

Hi all! I have an opportunity to jump into a turn key triplex in a nice part of town in a high appreciation market (St Pete FL!). This property should cashflow anywhere from $200-800 (net) depending on what I can rent it for/how accurate the comps I've found are. The catch is, it would cost us ALL of our savings... (but we would still have about 10k in our biz account). Is this too risky? We are very good at saving so can prob build it back up fast. My aunt (who is not a successful real estate investor, but has some experience with flipping) says I shouldn't jump into a triplex because I'm too new. She says I should start with a duplex and work my way up. There is also a nice duplex which wouldn't be ALL of my savings that I have my eye on but it would not cashflow as much. I kind of feel like it's more risky for that reason. I am a brand new investor with one other property which I have been STRing for 2 years. I feel ready to jump in to my next deal and love the thought of a triplex, but I know there are risks involved; especially since I don't know what I don't know. Would love to hear from some more seasoned investors. Thanks so much for your thoughts!

Nick Velez · Answer

@Rachel Degani

I don't see why a triplex is more risky than a duplex, outside of having another set of items to maintain/repair. If the deal cash flows and meets your criteria, the unit count should not play a huge role in your decision.

If you have any doubts on the numbers, I would connect with a local expert like @Josh Green.

Alacia Mahnken · Answer

I would argue that the TRIPLEX is less risky solely because of the vacancy factor.  One vacant unit on a triplex is a hit on 1/3 of your gross operating income versus a duplex where it would take out half of your gross operating income. The only issue now is what Raymond mentions above...most lenders require reserves of 3-6mo for approval on their investment loans.

Raymond J. Rodrigues · Answer

@Rachel Degani, are you buying this as an investment property or primary residence? FHA loan or Conventional loan? You mentioned that you would have 10k left over in your savings account. If you are buying with financing, and not cash, you will need to have anywhere between 3-6 months reserves leftover in order to meet lending requirements.

Jorge Vazquez · Answer

Hey Rachel, jumping into that triplex in St. Pete sounds promising, especially with the high appreciation potential there. With my two decades in real estate, I've learned the importance of balancing potential gains with financial safety. Using all your savings does raise some risks. My advice? Make sure you run a detailed financial analysis and always do a rental stress test to see how the numbers hold up under different scenarios. Keep some emergency cash just in case, too. You've mentioned you're good at saving up quickly, which is definitely in your favor.

Josh Green · Answer

Weird!  At first I thought you were one of my clients haha.  I just closed a 3-plex in St Pete a couple months ago with a client Ben Dugoni who just got married. Anyway! I think you hit it on the head - depleting your cash is, in my opinion, a calculated risk worth taking due to your savings rate.  You can further mitigate risks with items like a home warranty, sewer line warranty, etc that will cover big ticket items. Not to mention the fact that you can get financing with 0% interest with a credit card if you were in a pinch.  My vote: 100% go for the 3plex that is going to cash flow over an "smaller" investment that won't pencil as well.  It is so important to buy property that you set yourself up for success with (they pencil out) and mitigate the risks of loss.  That is more important that buying cheap and having worse investments you hold or end up having to offload at a loss.  Lastly, I always caution clients from taking advice from people that might not be experienced investors.  For example, my parents and inlaws don't invest in real estate.  Had I listened to their advice, I'd be in a much lower tax bracket and have a much lower net worth.  Doesn't mean they give terrible advice but I find it often comes from a place of fear or inexperience and discourages action taking rather than encouraging action taking.

Feel free to reach out if you want to discuss over the phone more details - I'm a fellow investor here.  I've done 3 house hacks, have a couple long term rentals, and bought a couple STRs last year and the year before all before hitting 29! :) I also co-host STRs and that's an area I'm super passionate about in real estate so it'd be fun to share ideas/questions!

Risks associated with triplex vs. duplex?

Most Popular Reply

Contact Us