Long term multi-family homes vs SFH?

Question

Just curious of the long term investment of multi-family over SFH?

I’m new and originally was interested in BRRRRing SFH but the numbers in my market don’t work. I’ve shifted to looking at multi-family properties but I have a question I’m hoping someone can answer...

What happens long term when you want to sell a multi-family? It seems so easy to invest in a SFH, cash flow, gain some equity, and eventually have the ability to sell depending on the market. In my head this doesn’t seem the same for multi-families. Are there that many buyers for these turn-key properties?? I would think it’s much easier to sell and make a nice profit on a SFH in a nice area in 10 years as opposed to a duplex in a less than ideal neighborhood.

Although I’m thinking way ahead... I fear having a portfolio of multi-families that are extremely difficult to sell if I was looking to cash out.

Any advice would be greatly appreciated!

Nick Robinson · Answer

@Brian Osso

Brain,

For my two cents I prefer commercial multifamily(5+ units). The reasons for multifamily:

1. Numbers work better (more cash flow)

2. More security (if you have a SFR and someone moves out you have a 100% vacancy. If you have a ten unit building and one person moves or you only have a 10%vacancy)

3. Loan is based on property not on the borrower

4. All your units are in one place which makes it easier to manage for yourself or property manager

5. The numbers are bigger (makes it more fun) also if you only make $100/mo one issue comes up and it eliminates your profit for the year or more.

6. Easier to move. People will always be in a market for a property that cash flows

7. Only have to do one transaction for an apartment but with a SFR you have to do a transaction for everyone (more fees and a headache)

8. Value is based on NOI. So as rents go up the value of the property goes up. Under four units is based on comparable s

9. Barrier to entry.

Only issue for the commercial loan you have to come up with 25%+ down. Usually they want more like 30%. So takes some capital.

Good luck in whatever you choose. As long as you pick the right property real estate is always a great investment.

Patricia Steiner · Answer

The demand for SFHs have exploded and in large part due to the pandemic. Subdivisions are now HOT as tenants/buyers attempt to escape high density housing. SFHs in my market sell within hours with multiple offers all substantially over list price. There is a real inventory shortage and our influx of new residents continues to grow.  Having said that, I can't find enough multi-family properties to meet investor demand.  But unlike SFH, they are not selling above valuation.  The market sets that rent more stringently based on square footage/bedroom & bath count.

I personally like SFH investing for my investor clients in the world we're in now.  It makes sense and we're retaining tenants at lease end and getting above market rent prices.

My advice would be to let the opportunity drive your buying decision. At the right valuation, in the right market, with the right demand - buy it!

Hope this helps...

Arn Cenedella · Answer

@Brian Osso

I would  most often choose to  invest in the better locations as I believe they appreciate more.

There are plenty of buyers for multi family properties so I don’t think that should factor into your decision.

Nick Robinson · Answer

@Brian Osso

👍🏻👍🏻

I started with a duplex and then four and a half years later sold it. Transferred it to an eight unit with a 1031 exchange. You have to just make a clear definite goal you want to achieve and slowly work your way to it. Make sure your conservative with your numbers and don’t take a negative cash flow. You’re not speculating your investing.

Warren Buffet rules for investing:

Rule #1 don’t lose money

Rule #2 don’t forget rule #1

Brian Osso · Answer

@Milo Milosovic thanks for the reply! I agree and like how once you are doing 5+ units you are not completely dependent on the market. I think that’s my biggest fear with duplexes/triplexes in my area.... they are all in less than ideal areas (which is fine) but the values of the properties don’t seem to be increasing. To some extent it doesn’t seem to matter the condition of the units either... if there are only 3-4 comps in the area and they are all run down... the renovated properties aren’t going for much more.

Brian Osso · Answer

@Nick Robinson thanks so much for the reply, lots of good info here! It all makes since and I appreciate you taking the time! I’m going to start small with a duplex just to get my feet wet.... I would eventually like to get into 5+ units but at the time I don’t have the capital for the more expensive properties. I didn’t realize the differences once you are doing 5+ units (commercial) so thanks for pointing that out.

Brian Osso · Answer

@Patricia Steiner thank you for the reply! As I’m just starting off the thought of a SFH seems a little less overwhelming. Unfortunately my market doesn’t support renting out rehabbed SFH (mostly due to high home prices and extremely high taxes). At this time I’d rather stay local for my first project, it’s just a comfort thing!

Nick Robinson · Answer

@Brian Osso

Scalability-another positive

Long term multi-family homes vs SFH?

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