Single family or Multi?

Question

This is generally for people who have experience with both. Which do you like better and why? Which do you recommend for a beginner? This is for buy and hold purposes.

Shane Pearlman · Answer

It is kind of like asking me, blonds or brunettes? You can get a fast off the cuff answer, but ultimately the answers are kinda meaningless. Its whole package that matters.

The right answer is nuanced and starts with your personal goals and investment philosophy. There is a lot to like about nearly every asset class once you learn the ins and outs. Your goals for cashflow vs equity growth, your ability for loans, your capital, your experience all play into the right property type.

My SFRs were great for appreciation. They allowed me to buy in a 80%LTV. They were 3Br in solid neighborhoods in a strong metro area. I never had a single vacancy and with a single exception had phenomenally easy tenants. They didn't cashflow much. The fact that they did at all was a hybrid of having done substantial remodels and buying at the market low in 2010. Today, you can't cash neutral without putting 40-50% down.

My Duplex - Fourplexs cashflow really well (for major metro west coast). Enough that my wife is now a stay at home mom. The tenants are solid but turn over a bit more. The loans are 70%LTV and the prices were higher, so I have more skin in the game. Repairs are easier, I had to replace one roof rather than four of them. When one unit is vacant, the hit on cash is more balanced.

I'm almost out of Fanny / Freddie loans, so soon, the answer becomes multi 5+ by the nature of the US lending industry.

Shawn Holsapple · Answer

@Joseph Ball did a good job of summing it up above.

When I first got started, I was drawn into how amazing the small multi unit ROI was "on paper" and ended up with over 22 doors at one point.  All lower end [that's about all there is here in Indy - IMHO].  The combined rent was about $1k or more and it looked sooo sexy...

Then, after several months I came to realize [the hard way] that they were a maintenance nightmare [because they are all about 75 years old] and I had high vacancy and/or non paying tenants in addition to the vandals taking their fair share of copper and other materials.

I ended up learning [and loosing] a lot during this process.  One theory is that we all grew up in SFH here in the Midwest, and when a tenant sees a typical duplex it "looks" like a SFH.  What they don't realize is there is a very thin shared wall, yard, porch, parking etc and end up hating it.

In addition, as mentioned earlier, most units are old and in lower end neighborhoods.  Now that's not to say we don't have newer, nicer units but they are very expensive [$125k for a total rent of $1400].

IMHO - I would much rather have two simple post war built homes that cost me under $60k [after full rehab] and rent for $800 than one double that cost the same $60k and rents for $1100...

Once I started working with out of State investors on a regular basis and almost always seeing them buying the SFH product, I realized that they had at least 2 good exit plans.  Sell to a home owner or another investor easily in the future.

Now, I have a nice little portfolio of 1950-1985 built single family homes that all cash flow nicely with very little headaches.

I hope that helps.

Joseph Ball · Answer

Single family. When it is time to sell, you can usually sell to an end-user or an investor. You may be able to achieve "Retail".

Multi family you will only sell (usually) to an investor. "Wholesale".

Dan Perrott · Answer

I own both but do like the duplexes more.  One side pays the mortgage which lowers the vacancy cash flow risks.  In Indianapolis, most duplexes are in such high demand that selling is not a big problem.  It is hard to find a decent (B or higher) duplex property.

Single family or Multi?

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