Single family or multi family starting out?

Question

Thomas S. · Answer

SFH is no easier to manage than a multi and in may aspects more difficult. With a SFH you have higher expenses, lower cash flow and much higher risk having all your eggs in one basket. SFHs are a home buyers market requiring you to compete with home owners to buy and depending primarily on appreciation where as the value of a multi is driven by the rental income and like minded investors.

If you want to be a home owner managing a tenant buy a SFH. If you want to be a landlord and learn th ebusiness ivest in a multi.

Michael Ealy · Answer

Hi @Alex Lupo, that's a broad question and if I were starting out, knowing what I know now, I would ask this question from the point of a lender evaluating whether a particular deal and borrower is a good risk or not. You are the borrower and the deal, is whether SF or a small MF (example - 4 units).

Lenders use 5Cs:

1)  Cash - in this case, you said you have $30K cash. That's a good start. Assuming you will NOT house hack (i.e., live in one unit and rent the others for a MF, or fix a SF, live in it and then sell it after a year), $30K cash can buy you a $120,000-$150,000 property (excluding repair cost).

2)  Credit - do you have good credit? Good paying job? If not, you may need more than $30K cash to get into a deal, or you can bring someone in to help you (with additional cash and/or credit).

3)  Collateral - in your market, can you find good 4 unit MF in reasonable areas (not war zones), for $120,000-$150,000? If NOT, then go with SF homes as your first deal. It will be hard for a lender to lend you money for war zone properties.

4) Capacity - what is your capacity to pay back the loan in case things don't turn out as well as you expected? Do you have a high paying job that can sustain things if "Murphy's Law" happens? For example, what if you need to replace 4 furnaces or 4 ACs in the MF? Can you pay for all that? Does the property produce enough cashflow to take on the risk? If not, stick with a single family property as your first deal.

5)  Capability - what is your personal capability to invest in the asset you're considering? For example, even though you don't have real estate experience yet, do you have experience managing renovations (say as a contractor) or managing people on your current job, or leasing experience? For example, if you have experience managing renovations, then maybe going with MF is the way to go because you already have the capability, say to renovate multiple units if needed.

As you can see, there's no straightforward way to answer this question. It depends on your market, on the prospective deals you have in front of you and most of it all, it depends on YOU.

Adam Gollatz · Answer

@Alex Lupo I was just talking to a guy this morning about this. Look into house hacking a 4 family. Living in the house gives you the advantage of lower down payment 30 yr mortgages and the added benefit that you are there to  learn its quirks and be able to save on maintenance/management fees. Not to mention, the best tenant you'll ever have is yourself.

Mary M. · Answer

I would suggest as many doors as you can buy under one roof.  :). You get economies of scale, and you spread your risk out.

Good luck!

Chace Fraser · Answer

Hi @Alex Lupo

The best advice often heard is to start with a House Hack. This means buying a 2-4 unit property and renting out the other units. Often times the rent will cover or exceed your mortgage costs. Don't forget to keep reserves for maintenance and capital expenditures.

You can also use the FHA loan, which allows you to put 3.5% down on this property as well. (Also look into the FHA 203K loan)

Another benefit to going with a multifamily is that it can "boost" your purchase price using 75% of the other income to help your debt to income ratio... so $1000 rental is worth $750 to offset any PITI payments. A good thing especially for young adults who have student debt.

Adam Gollatz · Answer

Too broad of an question, you have to give us something to work with. What are your goals and interests, financial situation, risk level, and skills?

I like multi family residential and Im starting to do flips. PM me if you want to talk more.

Maurice D. · Answer

you are young.  what is your current living arrangement?

House hacking a duplex would be a typical for someone who doesn't own a home yet.  if you own a home, you can still buy a duplex and move into it, rent the other side and your existing home out.  maximize your cashflow, minimize your expenses.

John Warren · Answer

@Alex Lupo this is mostly a function of your market place. Are there quality, purpose built multifamily properties in your area, or are the 2-4 unit properties just chopped up old houses in the tougher part of town? Here in the Chicago market, you can find the same buildings in fabulous areas for over 1 million all the way down to 15-50k on the south side.

If your market is mostly single family homes, then you may not have a lot of options. There are many areas of the country where multifamily is not desirable, and in those areas the numbers often make more sense to do single family homes.

Alex Lupo · Answer

@Adam Gollatz @Bobby MontagneI’m 24 years old I have 30k in cash. I’m looking to buy my first investment property in Tampa FL. I’m just back and forth about wanting to go single family or multi family. I feel that I should start out slow and go single family just to learn to be a landlord and the ins and outs of the business. What are your thoughts?

Single family or multi family starting out?

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