SFH Indv. Room Rental vs. Fourplex

[Mehran K.]

Hi all, this is a repost from earlier as I think I may have posted in the wrong Category.

I'm contemplating purchasing a SFH and renting out the spare rooms or buying a fourplex and renting the other 3 units out.

I don't have much experience to go on, but after running some spread sheets It seems like I would have more cash flow getting a 4br3ba(or more) SFH and renting out the individual rooms, than I would get on the Fourplexes in my area.

Do SFH's appreciate quicker than Fourplexes?
Are there any benefits tax-wise for chosing one over the other?
Has anyone had experience with renting out spare rooms that can give any input or advice. It would be appreciated. Thanks so much in advance.

[Jon Holdman]

SFR's have a broad range of buyers since most are sold to people who are going to live in them. Four plexes, on the other hand, are always sold to investors. So, the market for them is much smaller. Even considering people like yourself, since you seem to be planning to occupy one unit, there are still many fewer potential buyers than with an SFR.

Many cities restrict the number of unrelated people living together. I looked quite a bit at potential student housing a while back. That city limited you to two unrelated people in a house in the R2 zoning areas that were common a little further away from the campus. In the RH (high density) zones closer to the campus, there was no limit. People did buy houses in the R2 zones and rented the individual rooms, but they did get ratted out by other landlords. I heard that directly from the planning people at the city.

No difference in tax implications of an SFR vs. a fourplex. Or, an apartment building, for that matter.

There are tax complexities if you're living in the property, too.

IMHO, you should keep your own living arrangements and your investing separate. A residence (a property you occupy) is not an investment, no matter what you're told by an industry that does its best to convince you otherwise. Its an expensive doo-dad, same as a car or boat. And, for the many people who don't actually save any money, a paid-off house later in life becomes their only nest egg. But if you compare the value of that property to the true cost (including interest, taxes, insurance, and maintenance) to the value, its almost always a loser.

Now, its true that you need someplace to live, and even if the property is worth less than its total cost, then that loss is effectively the "rent" you've been paying to live there. And, many times that rent is less than what you might have paid had you just rented some place.

Nevertheless, you should choose a place to live based on your needs and your pocketbook.

Choosing rental investments, OTOH, is quite simple. You look for something that's a good deal. Usually, that's cash flow. Read in the rental property forum (where this post is now) about the realities of rental properties and especially the "50% rule". Then, find investments that will cash flow with that rule. Sometimes people do invest in rentals that don't cash flow because of some other reason, usually expected appreciation. That's called "speculation" for a reason. Its very, very difficult to predict appreciation because many macro factors (like interest rates and the overall economy) affect prices. Some folks got very rich doing this. But others ended up with a portfolio of properties that all went to foreclosure.