Duplex or Triplex?

Question

What is your preference for landlording? Or is there another prefered small unit building?

Reason I ask is that there are 2 buildings I am looking at. One is a duplex and one a triplex. Both are located on the same street and both are similar in price. I also think at 100% occupied they would bring in the same rental amount.

Details:

Duplex -- each unit is 2/1 (2 storey, one unit on each floor). Located on corner lot.

Triplex -- units are 1/1; 1/1; 2/1 (smaller units on first floor, bigger unit on second floor). Located on corner lot.

Duplex is about $20K higher in price at list, but appears to be in better condition. I will be looking at both this week to check interior.

Street is composed on only multi-unit buildings. All look similar in style and were built in same period -- hard to tell from out side if they are duplex or triplex, but I imagine it is a mix.

Which would be your preference?

Rob Gillespie · Answer

Andy, My personal advice is that a small multi unit is like buying yourself a job. I have owned just about every type of property and I LOVE single family homes. They are super easy keepers. They make you a nice income without all of the headaches. They are easier to finance and easier to sell. The tenants seem to stay longer and take better care of the place. I know the big argument that I will get on here is that there is more money in the multi unit, but with having to pay for maintenance and the turnover, it works out better with a single In my experience.

Account Closed · Answer

Great information! Andy, you'll just have to weigh and decide. When a tenant rents a SF, they do seem to be a little more responsible. Tenants in an apartment see as such, I just live in an apartment, who cares. That said, I've got almost ten multi-units. When you have a vacancy, you're only loosing a partial rent. It's sometimes like spreading yourself on ice so you don't fall through. On my SFs, when I go without a tenant for a month, I'm covering that entire mortgage. The good part, since you are thinking of buying either a dup or tri, when it comes time to sell, it's easier to sell to an owner occ. Which means the future buyer might even be able to get a deal as a first time home buyer... Which can make it much easier to sell when that time comes. Always think about your exit strat when you're buying, you may plan to hold the property for 10 plus years, but always consider the way out.

Joel Owens · Answer

Different states and areas will have varying tenant use patterns.So one investors strategy might work best in one state but not in another state or area. So you have to take what everyone's experience is with a grain of salt and see how it applies and works or doesn't work for your area. If you are just starting out most investors are taking on the most risk and yield possible if they are starting out with little cash. If an investor already has a bunch of cash and going into real estate then many are risk adverse.They want maybe a 7 to 8% annual return with an appreciation combo and do not want a headache to grind out to 12 or 13% or higher. Outpace inflation and grow more money than you use to live is the game there. Yes owning a tri or duplex can be easier to sell to owner occupant but if the area goes down hill you might not get a lender to loan there.Your property might be great but the others are trashed. This is why it can be an advantage to own a whole complex.You control all the tenants and upkeep for the place. Pro's and con's to EVERYTHING.No property comes without risk and a potential down side.The real question is WHAT TYPE OF RISK are you comfortable with and willing to take? Only you can answer that question.

Michael R. · Answer

I am actually buying small 3 bedroom singles now. The doubles make a little more money each month but I have more turnover and less quality tenants. Also the tenants complaining about what the other tenant is doing gets annoying. Singles have less taxes as well and it is less to get rent ready.

Nathan Emmert · Answer

BS

Leon Y. · Answer

Andy, Rob and Nathan both have very good points. I think if you are willing to deal with a bit more headaches for a higher return then multi units is the way to go. Having said that, I have to admit I enjoy renting SFRs as I haven't had any headache. Then again, my fourplex was very old so there was a lot of maintenance issues. As for tenants, the quality of tenants in a multi unit won't be as good as SFRs, but it doesn't mean that you can't find good ones. Stick with at least 2 brs, I hear 1 br is a nightmare to manage.

Nathan Emmert · Answer

Andy, I think it depends on where you are in your total number of units. I believe diversification is huge at the start. Having lots of small streams of income versus few larger streams helps you manage your cash flow at the start. I would rather collect $250 from 4 renters versus $1,000 from 1 renters. In the first case, I'm going to get $500 and maybe chase $500... but I'm still operating... in the second case, if I have to chase that full $1,000, I'm going negative in the meantime. Granted, once you have 5 or 10 units purchase properly (keeping debt servicing below 3:1) it's a much smaller concern. At that point, you'd rather have less doors rented for more each unit I'd think.