Multi-family vs Single family

[Matthew Choi]

I am new in Real Estate and I have been educating myself with the market and different oppotthnitues. I really want to invest in a multi family home(duplex,triplex, or quad Plex, but the area I am in (Baltimore, MD) does not have many great multi families that are in a good area and decently priced. Do you recommend me continue to look for Multi families because the upside it has with cash flow and appreciation or should I get started with a single family house in a good area where I can get friends to move in as roommates, but charge them as tenants?

[Joe Hines]

Hey Matthew,

You'll get a lot of different answers from various investors depending on their focus.  I'm a buy and hold rental investor and I look more to long term appreciation and immediate cash flow.  If you listen to the Bigger Pockets Podcasts, you'll hear from a lot of smart investors doing deals.  Absorb that information to get the basics and a good background.  Then use that information to start developing your own creative strategies.

  I looked at several different criteria when I started investing.  Here's how I'd summarize them:

• Invest where the economy is good and people are moving: Outside of a few metropolis in the northern tier states, the population has long been moving south.  
• Invest where people make enough money to make the rental deals work:  When you start to look at any particular city or area, look at the demographics of the population.  What's the age and income distribution?  What are the rates of home ownership?  If you find an area where the average income is $50K and you stick with the general rule and qualify potential tenants and estimate they spend 30% of their income on housing, then you'd be looking at an average renter able to spend between $1,200 and $1,300 per month.  Knowing the potential rent is going give you a good indicator of the costs of the houses you'd want to target.  For example, if you use the 1% rule, you'd be looking at purchasing houses in the $120,000 - $130,000 range.  Obviously, lower is better if you can get into good neighborhoods.  
• Know the area:  I grew up in a rural area of North Florida.  The houses are cheap, but the rent isn't Miami or New York City.  Still, I'm able to make my numbers and I see slower appreciation.  The market is very stable and reliable.  I'm looking at new markets in Florida now and when I do I go rent AirBnBs there to get a feel for the place.  I go to open houses and get to know realtors and the neighborhoods.  I get a sense for the kind of people that will be my tenants.  Even though I use a property manager, I'm pretty hands-on.  I visit and inspect my properties regularly.  Finding a place you want to be makes these trips easier.  And they are largely tax deductible, so you can make this a sort of working vacation.  Maybe as you build out your business in a certain market, you may want to move their in the future.     
• Know the people and build a team:  In parallel with "knowing the area", get to know the people.  Are you going to use a property manager?  Doing any repairs?  You'll want to get to know plumbers and electricians, lawn maintenance and handy persons for those small jobs.  Not only does this help you sniff out the BS you might get as an out-of-town investor, but it also is an invaluable source of word-of-mouth, off market deals.  
• Most important of all, know your numbers:  There is a ton of stuff written on BP about analyzing deals and I won't get into great detail in this post other than to say to start with the BP calculator and learn every number is presents in it's report.  It's solid and good stuff and it will lead you to learn even more about an area.  

There are a lot of sophisticated investors here who have some exotic approaches to RE investing.  I follow the rules above and I also don't buy houses in neighborhoods I wouldn't live in myself.  What I'm suggesting probably would seem simple and quaint to them, but I love this business and like to get into the details.  This approach has worked for me.