Buy a fourplex, 2 duplexes or 4 single family homes?

Question

I'm looking to capitalize on a high-growth area by buying some properties. I have multiple choices and would like your help in deciding which to go after. I have only invested in SFH so far, so your advice on the differences in rents, maintenance costs etc will be appreciated.

4 Single Family Homes

Average price for a 3BR with garage will cost around $150-$170k.

Will rent for ~$1300 each.

A comfortable option that I know will give solid returns. I will need to get higher rate investment loans on 3/4 of the properties.

Fourplex, new construction

Will cost ~600k for a 4 unit where each unit has 3BR and a garage.

I imagine rents will be lower, possible higher turnover?

Big benefit in that I can owner-occupy and lock down a low interest rate for the entire building.

Possible upside in less maintenance on new construction, possible downside if construction is cheaply made.

2 DuplexesCan be had for roughly $300k each.

No experience on this, but gut feeling is that 2 units will be easier to sell in the future, and command higher rents.Seems like the worst option of the three.

Your thoughts?

Heath M. · Answer

Single families are easier to exit, larger market.  I want a good mixture of all the above.  I like duplexes and 4plexes because it's cheaper for insurance (per door), there's 1 roof, etc.  But the singles have less turnover so it all averages out.  Less phone calls from the singles as well, they see themselves as partners and not just tenants.  They typically take way better care of the property and don't view it as short term.

Tyler D. · Answer

The fourplex sounds nice. Just the various things I'd heard about higher turnover seem unappealing. I suppose with a 12-month lease, the turnover couldn't be that bad, however.

Ken Nyczaj · Answer

@Tyler D'Alessandro all tenants under on roof and that roof being a new fourplex construction sounds like a great long term play, plus you're living in one unit so managing will be easier. Plus lower maintenance and repairs costs. Maybe even rent out a room in your own unit and double dip!

Bryan Mitchell · Answer

Answer your question, yes typically multi families have higher turnover rates. My single-family homes have very low turnover rate at the moment. From my experience to get a unit ready for the next tenant is costing over $1000 per. I’m also interested in higher rents and at least $200 cash flow per door. so whatever you do, I’d say go after higher cash flow and lower turnover. This approach would work well for buying a hold but if your exit strategy is to resell a few years from now, my criteria would be different.

Stace Caseria · Answer

My thoughts coming from someone who owned 6 SFHs and a 6-plex at the same time. Go for the 4-plex, much easier to manage in my opinion (especially if you're living in a unit -- and new construction!). Like others have said, one roof, economies of scale on maintenance, etc. As for turnover, my 6-unit has 2 tenants who lived there for 20+ years, another 2 at 8 years apiece. Every situation is unique. But, then again, our SFHs had long tenancy too.

Last thing -- if you ever have a thought to scale up in the future, the 4 plex will get your mindset right. I know investors who get locked in with SFHs and talk about how scared they'd be to own something larger. It's just the way they're looking at it, you know, perspective.

Ryan B. · Answer

@Tyler D'Alessandro Another positive about the Four plex is that it takes one loan.  Usually the easiest and cheapest money you can get is conforming loans.  As you scale, you’ll be limited to 10 such loans.  If you can get more units on a single loan, your 10 loans will go farther.

Eric A. · Answer

@Tyler D'Alessandro

If possible to get zoned with good schools you will attract professionals with kids. Willing to pay a premium for the flexibility.

Tyler D. · Answer

Thanks. As for price, should I be paying less per door for my fourplex, or about the same?

The 3BR multifamily in this area are selling for about the same $/door as Single Family. If that's the case does the lower insurance/ maintenance etc outweigh the higher turnover?

Eric A. · Answer

@Tyler D'Alessandro

I would find the highest quality builder in that area and go with the quadplex. The 4 unit conforming loan limit is higher so you would only be out 20% for higher quality while giving you peace of mind of maintenance free living.

Bryan Mitchell · Answer

He’s right. Insurance can be significantly lower on multi family. My insurance on a triplex is what I paid for my SFH.

Buy a fourplex, 2 duplexes or 4 single family homes?

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