Multi-Family Purchase Economy of Scale vs. SFH

[James M.]

Hello!

I've been a SFH investor for about 2.5 years now with only one location/door. I had to put a pause button on saving for real estate investments while my wife was not working. But now we're back at it. My goal is to try to minimize locations while keeping a 10-12 percent CoC return in the San Antonio area.

More generally though, I've been looking at going into multi-family housing more as, again, it would reduce the amount of locations I have to manage, at least in the short-medium term. In particular I'm able to save up anywhere 80-100k a year towards this endeavor. With that said, I'm curious in what ways multi-family scales better financially then a single family residence? Are these benefits seen in smaller multi-families such as 2-4 doors? My goal would be my next purchase being a 2-4 door multi-family. I don't think I have the income/connections for something larger then that, but I suppose I could look at it depending on price and oppurtunity.

One of my direct questions are: 

• In general, is CoC return better on a multi-family that is 2-4 vs. a single family?
• Is it easier to find a deal in multi-families based on CoC return then single family? (I don't mean in numbers, but rather by percentages. I feel I have to dig to find an investment even close to 10 percent CoC for a SFH)

I would rather take 80k, for example, and instead of getting 2 or 3 SFH's, I'd get a single multi-family home. Fewer locations I feel would be easier to manage (number of tenants/placing/dealing with tenants not withstanding.). If I have the income, is there any down sides to going this route over SFH's? I feel like perhaps its an income issue that people don't jump on this, outside of house hacking which I can't do with my family.

[Joseph Cacciapaglia]

Many of my clients quickly move from single family to small multis, once they have the capital. Some people like SFH, because they believe that SFH sell faster than multis, but that's not really true here in San Antonio. We have so much out of state capital coming in to buy fourplexes here, that anything decent will sell very quickly. There is also the belief that SFH appreciate more rapidly. I don't believe this is true here either, but it is more neighborhood dependent.

Depending on how you're calculating your CoC, you may have a hard time hitting that return figure year one, at least in the parts of town that most of my clients like to invest. However, if you're doing a rehab, or if you're looking at your long term figures, there are definitely opportunities to cash flow well. Sometimes it takes a year or two of rent bumps, before you're hitting those kind of figures (again depending on how you calculate it).