how do I know what is more lucrative: quadruplex versus residential

Question

Hello! I wish to buy to rent with min rehab. I selected a few markets, but now I wonder what is more lucrative to purchase? Where do I find the stats/analytics to compare if it would be more profitable to buy storage units/qualdruplex/residential, for example. Thank you Team!

Gregory Chadwell · Answer

Marcus I disagree I've owned them for a long time and they are more cost effective than single families.  True owning a SFR you can have the tenant do snow and lawn.  But historically in my experience it was never done on time and i would get notices from the city about it. Hallway utilities are around $25 a month and tax deductible meaning net cost around $17.50.  I don't' see a need for a property manager (I use rent redi)  because you have 4 renters under the same roof.  Most 4's have separate furnaces   Finally NONE of my rents are $800 a month. mine average around $1200-$1400.  Since the average price of a SFR is around $400k you can get a decent 4 for less than 600K.  In the past with owning duplexes in Milwaukee, One rent paid for the mortgage and the other paid the property taxes and insurance.  I didn't get into investing to break even or lose money...

Gisele Sood · Answer

Hello Gregory! wow: thanks for enlighten me. I honestly did not even think about that. That is true, I disregarded the advantages of the quad having lower operational costs. Also, I think, general maintenance is centralized so 1 handyman could care for all units, which makes it easier to manage. Thank you.

Marcus Auerbach · Answer

Greg, quads are great and some people love them, but a better comparison would be 4 single-family homes vs 1 fourplex. Or if you want to bring it down to about the same value, let's say 2 SF to 1 FP. Across a SF  portfolio you have the same effect. There are 100 different strategies and I don't think one is the best, each one comes with pros and cons.

My issue with fourplxes is that based on tenant demographic rent per unit is quite low. The single roof is a plus for the FP. But you still have to provide (and maintain) a kitchen, a bathroom, HVAC (well maybe just heat), a water heater. So you have a rent-to-maintenance cost ratio that is not very good. I'd rather replace a $1200 water heater for a $2000 rent than $800 rent. The cost of the water heater is always the same.

With four plex you have to pay utilities for the hallway and common areas, also maintain and clean the common areas, because the tenants won''t. And depending on how the unit is built, the owner probably pays for water and sewer, maybe even for heat.

You also have a 4x higher PM cost, and probably more headaches due to the higher number of tenants. We want to highest amount of revenue (rents and property value - for appreciation and de-leveraging), with the least amount of tenants.

Also with SF lawn and snow are done by the tenant. With a duplex which are super common in Milwaukee you are in that in-between space where most owners try to make the tenants do it, but that can be tricky.

Marcus Auerbach · Answer

Ah, okay! I was wrestling with a similar question when I bought my first rental property. My main concern was if I there would be any tenants looking for a place in that particular neighborhood. I also thought of renters as people who are basically poor and can't buy a home. 15 years later I think that's funny.

You can look up demographics, but I don't think it will give you the clarity you are looking for. Also, there are more things to consider than max ROI.

Most people start by picking a particular type/style of property that they like for some reason (usually a gut decision). Instead, start by thinking about who you want to rent to.  Who is your target audience? This will determine the type of experience you will have with your investment.

A storage unit is very different to manage than low income housing or a single family in the suburbs. I chose the latter, because I used to travel a lot of for work and wanted a hands-off investment. We target young families with double income and kids that want to be in a better school district, which automatically puts us into suburbs outside of Milwaukee and MPS.

We buy and renovate properties with that target audience in mind. For example, we finish the basements with indoor/outdoor carpet (instead of LVP, which makes it feel a lot more homey), because we know parents go nuts in the winter if they can't send the kids downstairs to pay - or have a space for the guys to watch the game on Sunday. While we don't get significantly higher rents, we have extremely low turnover rates. Turnover and vacancy is often the single biggest expense.

The downside is that it is more expensive to buy SFs and cash flow is not as good.

Trevor Finn · Answer

Hi @Gisele Sood, there is a mix of free and paid services that can help you retrieve the data that you seek.

To gather data on tenant demographics and property demand, consider these resources:

• Census Bureau & City Data: Offers insights into local demographics, income levels, and household types.
• Zillow, Redfin, and Realtor.com Market Insights: Check these platforms for property demand trends, popular property types, and renter data by area.
• AirDNA & STR Insights: If considering short-term rentals, these provide data on occupancy rates, guest demographics, and property preferences.
• CoStar & REIS: Paid services that provide detailed market analytics on rental demand, property types, and demographic preferences.

These sources can help you understand tenant needs and property demand in your area.

Gregory Chadwell · Answer

It's like a mutual fund vs owning one stock!

Gisele Sood · Answer

Hello Marcus. I like the fact that you combine your target avatar to your investment target. Even though you feel you don't reach the full cash flow potential, you gain on making the lives of those families more comfortable. That on his own is a great achievement.

Gregory Chadwell · Answer

A Quad is still better due to the fact that you have 4 leases and 4 rents coming in and still can get a conventional loan.  If one moves out you still have 3 coming in and positive cashflow.  Also maintenance is less due to you only have one lawn, driveway and roof to deal with. If you have a single family it's like owning one stock vs a mutual fund to spread out the risk.

Bryan Montross · Answer

@Gisele Sood this is where you really need to start looking for your team in the area you want to invest. You can do a lot of this research yourself, or you can leverage the expertise of others that already know it. Talk to real estate agents, property managers, contractors, lenders, title agents, etc. to find out what is going one.

Also, you do need to think about what your goal is. If you are looking for cash flow, storage might be great in one area, but one county over they get 0 cash flow. I don't want you to get stuck analyzing everything, so narrow down some ideas of what you want to do, then go find where that works best.

Gisele Sood · Answer

Those advices are extremely helpful: thank you. I worded my post very poorly but I'm glad you got me

how do I know what is more lucrative: quadruplex versus residential

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