single family vs multi family

[Patrick Flanagan]

Hello!

I personally like multifamily investing because of the cashflow, value add, and a little easier on the pockets if you have vacancies. I close on a 4 plex in Oregon this month, im currently looking for other multifamilies out of state. 

I dont know much about single family homes. I havent really heard anyones opinion on why they prefer single families over multifamily. so if you could give me some reasons why single family homes are a better investing strategy over multifamilies? I dont want to rule out single families when lots of people make great money on them.

my goals are long term buy and hold cash flowing rentals.

[Dave G.]

@Patrick Flanagan First off, congrats on your first deal. I don't think one is necessarily better over the other. There are quantitative and qualitative considerations for each investor that goes into what they invest in. For me, I only have single family properties, but not because I prefer them necessarily. They were the deals I found and could structure as a cash offer. This was the purchase level at which I was comfortable for the investment objective I was pursuing. Offering cash gave me the competitive advantage against other offers. So for me, and I suspect a lot of "small time" investors, it was based on our personal financial resources and investing objective. 

Now if I had a lot of capital that I needed to deploy, strictly speaking multi is the way to go when you do the numbers. Even a 4-plex that you're buying has an economy of scale aspect versus a SFR in that there is only one roof to replace. And you are able to transact one acquisition for 4 units. And, as you mentioned, if you have one vacancy, you are still at 75% of full revenue versus 0% with an SFR. These are big advantages that I, as an SFR investor, don't not enjoy. Advantages for the SFR investor - depending on your market, there are a lot more SFR investment opportunities than there are MF opportunities to choose from. And when you sell an SFR, you have a bigger buyers market to sell to since you can sell to investors and owner-occupant. Multi-fam only sells to investors, of which there are a lot fewer.

I am at a point in my life where I am not really in acquisition mode anymore. Plus I think the prices are a little crazy now. But if I was going to continue buying, it would absolutely be what you're doing, looking a small multi-unit properties from 4-plexes on up. I would be doing a 1031 with my SFRs.

Some obvious things that I would caution you on as a landlord. Be sure you have sufficient cash flow and cash reserves to handle maintenance issues. When I was a young man like you (assumed by your pic), I had 3 rentals by the time I was 23 years old. There was no internet and no BP at this time in the early 1990s to learn from. I had poor cash flow and no reserves. Maint issues crushed me and I had to dump all three properties. If I had done better math with cash flow and had a few thou at least in reserves, this would not have happened. I learned an expensive lesson. Please don't let this happen to you. 

Best of luck to you,
Dave