First Investment Property Advice SFR or MF?

Question

I am seeking some advice on my first investment property.

I have about 55k cash and my budget is about 200K max, (20% down) which will leave me with approximately 15k in reserves. I am wondering if it would be best for me to start small by purchasing a 2BD/1BA home for around 125k and try to rent it out without utilities for around 1300 / month or would you recommend purchasing a 3-4 unit property? I’m afraid that with a Multi family my reserve will be dangerously low at 15k with the additional SQ FT that could cause issues / require repairs.

To be approved for the commercial loan I am looking into I will be a 1.20x DSCR which is possible with both the SFRs and Multis I have been looking at but it's looking like the MFs will cash flow more than the SFR...

I would appreciate any insight possible and please feel free to point out key details I may have not mentioned / may be overlooking

Thank you!!!

Bill O'Donnell · Answer

@Blake JenkinsConsider a 2-4 unit property with a 3.5% fha loan. Move into one unit, and rent the others. Consider it higher education. And by putting in 3.5, you can keep more reserves, or have a head start on your next one...

Allan Smith · Answer

Are your long term goals for cash flow and passive income via rental property? Go with MF. One or two more units honestly isn't that different. If you can buy an SFR rental you can go 2 - 4 units, and it will get you on the fast track. Go big, and then go bigger!Most of the folks I know who have accomplished a lot in real estate went for it. They didn't take baby steps, they pushed it as soon as they could. Sure, you'll evict your first tenant or two from lack of experience in screening, but while you are making a mistake here by going bigger quicker, the rest of your portfolio is growing faster more than making up for the mistakes and missteps. I'd wager a guess that a lot of the people here on BP would be doing more deals and getting bigger profits or cash if it weren't for fear and hesitation. We americans love our regular bi-weekly paycheck and health insurance. The "security" of such has us frozen in shackles of fear. The way I look at it, you're gonna fail at some point, so why try so hard to avoid it? I lost money on my 5th fix n flip because I was trying to do 3 flips at a time and got sloppy. Oh well! I made profit on the other 2 that far out-weighed it. I say, push the ceiling and fail fast so you can get better and better at overcoming challenges! Anyone successful as the learned the art of the ol' pick yourself up and go again.

John Teachout · Answer

My two cents: If you can live in a portion of a multi-family, go that route. If not, start with a lower price SFR. This will be your training program and it's easier to get in and get out of an SFR. I think they're a great place to start since the risk is lower. Almost every landlord refines their processes as they go along and making critical mistakes on "small" money is better than on "big" money.

Nick Rutkowski · Answer

@Blake JenkinsIt’s all up to your preference. I don’t rent to long term tenants, I AirBnB instead. The best move is to buy a house, single family or multifamily. That way you gain experience and then you can have a better idea which path you want to take.

Blake Jenkins · Answer

@John TeachoutHi John, I really like your outlook on this.. my gut is telling me what you’re saying I think.. kind of want to start as low risk as possible and get some real experience “under my belt”. Thanks so much for the 2 cents, although I’d refer to it as a lot more than that! -Blake

Blake Jenkins · Answer

@Nick RutkowskiThanks Nick! It’s good to hear that you went that direction and don’t have regrets about not going the SFR direction! That’s an indicator to me that multi can be a good choice for a new investor. I just worry about the differences in tenants that might be attracted to a not so nice multi family and if that would come with more headaches, but cash flow is cash flow so maybe it’s worth it.

Nick Rutkowski · Answer

@Blake JenkinsMy bias is towards Multifamilies because I went that direction. 200k is enough to afford a duplex and in some places a fourplex.

Blake Jenkins · Answer

@Nick RutkowskiHi Nick, thanks for that advice. What would you personally recommend?

Nick Rutkowski · Answer

@Blake JenkinsThis is a Grant Cardone answer for you. Multifamily properties have more chances of making money compared to a single family house. Therefore, if you can’t rent out your single family house it turns into a liability rather than an asset. Hope this helps!