Multi-Family vs Multi-Unit Office

[Mike McGee]

So far, all of my investments are SFR. Now I have a couple of opportunities: one is a multi-family residential property, the other is a multi-unit executive office property.

For the sake of simplicity, let's say you have two properties. One is a 12-unit MF, the other is a 12-unit executive office building. Say they both have the same purchase price and cap rate. Private money lender will give the same terms on either property, so financing is not a player. Which would you choose? 

As opposed to most office buildings, having so many units spreads the vacancy risk out just as well as the MF building. One possible pro for the office building is that businesses may stay longer than residents. However, most of the tenants are only on 1-year leases, so I'm not sure I can count on that. One possible pro for the MF building is that, if/when the economy goes down, many of these small businesses could decide they can get along without office space, whereas people will always need a place to live.

Thoughts?

[Ben Rishwain]

@Mike McGee I have leased multi-unit office for nearly 10 years and own multi-family. The upside of office is that if you get a credit tenant you can sign to a long-term lease, you have a solid rental stream. The downside is office unIt can sit vacant for an undefined amount of time, maybe years, whereas multi-family is pretty easily replaceable assuming proper supply/demand. Additionally, with office it’s possible tenant improvements are necessary for every tenant, which means moving around walls, new carpet and paint, etc. This requires deep pockets. It is because of office leasing that I have opted to own multi-family...and down the road mobile home and self-storage.