First time investor: Single family or Multi family?

Question

Hi, looking to invest out of state in Indianapolis, would you guys recommend single family or multifamily? Which provides better cash flow? I heard multifamily market is tough to get into right now in Indy, people are buying with all cash. Appreciate any stories and tips!

Dani Beit-Or · Answer

Hey Jesse,

When you mention "multi," are you referring to a duplex, a fourplex, or something even bigger?

Ultimately, it all boils down to you—your experience, your availability, and your ability to handle multiple tenants, units, and issues (trust me, they'll all come knocking).

Typically, for beginners, anything beyond a duplex can be overwhelming. Even if it seems financially attractive, factors like the property's location and condition will impact on the level of challenges and the frequency you will experience.

Here are some challenges you'll likely face when buying a multi-unit property:

1. Gathering all the information will be more time-consuming, especially if the seller is an individual rather than a big corporation.

2. With larger multi-units, there's a common issue I call the "chronic disease of a fourplex":

- One tenant might leave within a couple of months, with or without a valid lease.

- Another tenant may start causing problems, believing they're owed something.

- The remaining tenants might be fine.

* you may even have all 4 tenants vacating short after purchase

3. It could take you a year or more to stabilize the property and start seeing consistent returns.

4. Owners often view their multi-unit property as one entity, which can lead to frustration when issues arise. It's important to remember that each unit is its own property, even if they share the same address.

In my experience, starting with more than a duplex right off the bat sets you up for a lack of success (not failure). These properties can often breed frustration, which can hinder your sense of achievement.

Jake Knight · Answer

Duplexes are really common out here as well as single family properties.  If you're looking to do something sooner rather than later, it'll be much easier to find SFH or small MFH.  Duplexes tend to cash flow better than single families but is a very niche buyer.  When you go to sell, only investors will look to purchase it.  With single family, you have a much better buyer pool when you go to sell.  That could help with appreciation but there are many factors. We don't have any trouble renting doubles out as many of them are in more trendy areas.

Staci Rogers · Answer

Hi Jesse,

As a lender, I am seeing more borrowers getting into multi-family due to the higher rate environment and challenges with cash flow. Typically multi-family properties tend to cash flow better; however, it depends on the sales price and rent. Some larger SFRs are leasing for as much as both units in a duplex.

There are pros and cons to both, but keep in mind with a duplex (or greater), if a unit becomes vacant, you still have cash flow of the other unit(s). That is important to your lender if you finance the property.

Staci

Scott Schnabel · Answer

Depends on your comfort level.  Multi family will probably have at least 1 paying tenant to offset losses during a changeover.  Single family will have no one paying (except you) until you can get it rent ready again and get it leased.

Konstantin Ginzburg · Answer

@Jesse LeighTypically a multifamily (2-4 units) has a higher cashflow compared with a single family home but will also required more work since you are managing more units/tenants with a multifamily. How easy it is to acquire a multifamily is very dependent on the location. Some areas have built a lot of multifamily properties; some areas are primarily made of single family homes and very few multifamily get on the market. Keep in mind that once you are into commercial level multifamily (5 units and above), you are now dealing with commercial financing and valuation which is very different from residential valuation and financing.

David Avery · Answer

Single will be best for first time .

First time investor: Single family or Multi family?

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