New investor....Should I buy single or multi-family?

Question

I am looking to start my real estate journey in the coming months. I've been doing a lot of research into real estate investments (BRRR, Fix and Flip, Multi etc.). My strategy is the long game, buy and hold, build equity and cash flow down the road. As I understand that there is not one best strategy. I don't plan on sticking to one method of investing however I do realize that some investors start with Single family and grow into multi-family. I would love to hear some of your thoughts and opinions on this.

John Morgan · Answer

@Michael Nguyen

I’m a single family investor with 29 SFR. They’re easier to manage. Easy to get financing. Appreciate better than MF. Zero tenant drama vs MF. Cash flow better. Much easier to sell if necessary. Tenants stay for many years vs vacancies every 17 months on average with MF. And easier to fill a vacancy when they come up.

Michael Nguyen · Answer

Thank you everyone for your insight. I will update you all on my FIRST investment!

Allan C. · Answer

@Michael Nguyen I’ll share a different perspective.  I generally agree that buying SFH as first investment is an easy way to test the waters; however, if you’re set on REI I suggest buying a duplex or quad. SFH will take years to gain the same experience you get in one year with a quad.

You’ll expedite your learning curve with more units and it’s still fairly easy to dispose of <4 unit if you want to exit. You’ll still need lots of due diligence and time closing your first investment, so why not get more units with similar effort?  Whatever you buy you likely won’t keep it down the line as you better define your investment strategy, so my advice is to pick an asset that’s going to teach you the most in the quickest amount of time.

Todd Anderson · Answer

Micheal,

There is a couple of other things to consider.   Are you planning on managing the properties yourself?  Are you planning on doing the maintenance your self?

Many first time investors don't realize that by getting into the management they are getting another job.  Many of the investors that I work with have good jobs and are looking to get into REI to grow wealth not get another job.  They are happy to look further from where they live, in a better rental market, because they do not want to do the management.

If this were the case, then as others have said a hybrid of a 2-4 unit might be the best place to start.  The investors that I work with find that the financing for this size unit is that same as SF and they are able to cashflow nicely day one.

Just another thing to think about.

Logan Lambert · Answer

Hey Michael,

It all depends on the deal. You can find single family that cash flow well and also multi-family. I would always run your numbers to make sure the DSCR is good and it cash flows and buy what will benefit your business.

Guillermo P Manso · Answer

I am looking or an apartment first, I am thinking about starting small first.

Colby Fryar · Answer

@Michael Nguyen

A lot of it depends on your market and what is more available and attractive.  In our market, it is probably a bit more desirable to go after smaller multi and of course it depends on the capital you have.   However, if both are desirable and available in your market, I would definitely choose smaller multifamily (1-4 units) hands down.  The more units the better, because you are better protected when you have move-outs.

Alecia Loveless · Answer

@Michael Nguyen I bought a SFH first because I found a good one that made financial sense. Unfortunately I had a bad inspector who missed a lot which made it about a $60K renovation instead of what I planned for which was $15K.

Shortly after I purchased a duplex and then a 4 unit and some more in that range before I bought an 8 unit.

The 8 unit has required more time and energy because it had been poorly managed for years.

I would still be buying more SFH but 5 years ago the entry was about $100K. Today it is $300K. But I can get into multi at less than $100K per unit. Yes they require renovations at that level but with a little love I am still getting cash flow.

I recommend you spend some time picking and getting to really know your market. That will help you make educated decisions. I would also recommend 1-4 units to start with because I’ve just found that to be much easier than my 5-10 unit buildings.

Also it’s likely your lender will want you to have some experience before you go too big.  Not true of all lenders but you may get better rates and terms as you gain experience.

Samuel Diouf · Answer

Single-family homes and multifamily properties both have their pros and cons. Single-family homes benefit from a larger buyer pool, appealing to families and owner-occupants, which makes them easier to sell. They also tend to have lower tenant turnover and simpler management. However, vacancy means covering 100% of the expenses.

Multifamily properties almost always generate higher cash flow due to multiple income streams, which also reduces the risk of vacancies. They make it easier to scale your portfolio and build wealth.

That said, the fewer units a property has, the easier it is to manage, so smaller multifamily properties can offer a good balance between cash flow and simplicity. Multifamily properties do require more management overall and typically appeal to a smaller, investor-focused buyer pool.

At the end of the day, you can be successful in both asset classes and they go hand-in-hand. I would base the decision off of how good the deal is from both an equity and cash-flow standpoint.

New investor....Should I buy single or multi-family?

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