Rookie investor here - Multi-family unit or condo/townhome?

[Paul S.]

Hi All,

I want to start investing in RE , I am looking to buy in Chicago am contemplating a Multi-Family unit. But I do not know what the exit strategy for that would be. Can I sell them as easily as a condo or a townhome? Is a regular townhome or a condo better to start off? Is there a reason why I should pick one over the other?
The reason I am thinking of condo/townhome as an alternative is I would buy them in a good neighborhood in downtown and so is easily rentable and probably easier to sell if I want to (based on location). For the multi-unit I have to go a little away from downtown but still in good neighborhoods (meaning easily rentable).

Also I read about the 2% rule on this site and also the 50% rule. Both of them make sense and I learned a lot in the one day I knew about this site. But in Chicago downtown area I cannot see the 2% rule working at all. The rents for a 2 br are probably 2500 and I pay 250K at least for one. So at best I get a 1%. Should I not even consider the area then?

Thanks for any and all feedback.
- Paul.

[Thom H.]

Welcome to BP Paul.

I own both... The multi unit should be a buy and hold strategy in my opinion. Just the nature of a multi unit is a higher priced investment, so you immediately narrow your buyers because it takes more money for someone to buy it from you when you're ready to sell. The are a lot more buyers for SFH's and condos because of price is lower...so many more buyers in that market. If you're looking to flip or sell relatively soon after purchasing go for the SFH over the multi.

On the other side, recognize with a SFH or condo, when you have vacancies or tenants that don't pay, the lost rents tend to hurt a lot more (especially starting out if you have limited resources and need every penny to make mortgage payments.) However, with a multi unit, if one tenant is late or you have a vacancy, it's easier to absorb because the other unit(s) typically can cover the costs for that month.

It all boils down to your objective. I started with a multi unit for the latter reason. I wanted a higher degree of confidence the rents would always cover my expenses and mortgages if there were vacancies. I still own that multi unit (years later) and it's very profitable to this day ( and have no intention of selling it any time soon). I've since bought both more multi units, SFH's and town homes and they are just as profitable, but SFH and town homes are definitely easier to sell if you need to exit. Just my experience...for what it's worth.

Define your overall REI objective, understand your ability to financially cover costs if things don't go as you expect, and your exit strategy will probably define itself. Hope this helps. Good luck!