SFH vs MF is there a winner?

Question

Hi All,

Curious how you feel about Multifamily (less than 8 doors) in the Indy market. Seems that SFH would be the way to go in general, due to the higher rents and the lower vacancy rate. With the low real estate costs here in Indy, it seems that MF would have a hard time standing out from Apartments. Curious if anyone has any strong preferences on this subject, or if this is purely a number/neighborhood choice for you all.

Maybe I'm biased, but I've always favored SFHs in my analysis, but i'm wondering if I should take another look at MF. Also read a recent article in IBJ about how Indy has a deficit of MF properties, and we'll need to increase them in upcoming years. Makes me wonder about the future of these properties.

Ryan Mullin · Answer

For the first time in my career I am targeting duplexes.  From an acquisition standpoint most flippers avoid duplexes...   So Im finding better numbers there then on SFH.  Any more than 2 units the numbers drop down again because you have an entire different type of buy and hold investors who don't mind paying more to place more capital.   At least thats what I think is going on!   :)

Todd Murphy · Answer

We evaluated both Sf and MF at the beginning and decided on MF, specifically Duplex properties.  We are only a few months in, but our purchase price was good and value add will give us a great chance at pulling all of our cash out in 6-12 months when we finance long-term.

We bought in Indy and outside Indy for our first two.  Competition is lower and if you really dig, you can find great deals.

Establish relationships with good agents and wholesalers.  Leads are good enough to find when you build these relationships.

Best of luck!

Mike D'Arrigo · Answer

@Curtis Robbins I agree with @Lee Smith completely. Most MF in Indianapolis, with some rare exceptions, are in older, rougher areas which tend to have higher vacancies and turn over costs.

Lee Smith · Answer

@Curtis RobbinsIn Indianapolis: When dealing with multifams, you need to be aware of a couple of different things.

Most multifams in Indy are in low income areas, and are much older(1900-1950’s). The deferred maintenance wracks up quickly, and you have to multiply that by the number of units.

Higher vacancy rates, instead of 2-4 weeks to fill a single fam, you are looking at 4-8 weeks to fill a multifam. It’s not for lack of applicants, but lack of GOOD applicants.

Higher turnover rates.. While my single fam renters generally rent for 4+ years on average, my multifams only rent for 1-2 years on average. The premium for single family houses is not that much more, and most residents will gladly pay that amount to not have neighbors. Turns(One tenant moves out and you have to prep for next tenant) are what kill you in rentals. A good tenant turn is probably going to run you $1000-1500. It's VERY rare that someone gives you the property back in the same condition you gave it to them.

Watch out for owner paid utilities. These can break the deal. While water/sewer is easy to deal with, anytime you are paying for heat you are looking for trouble. Residents crank the heat up in the winter and then open a window to cool off...

I am not trying to scare you off, just you need to budget for them.I don't mind multifams, but the numbers have to be right, and in this market it's hard to get the numbers right. I am buying more single fams than multi's currently.

Ryan Rominger · Answer

Here's my 2 cents: SFH tends to be the better way to go if you are looking to renovate and flip. Your ARV tends to be a higher percentage of your total investment cost (purchase + renovation). Due to there "investment property" nature duplexes/MFVs don't tend to get as good a return on a flip. HOWEVER, if you are look to generate residual income through operating rental properties MFVs are your friend (especially in Indy). It is usually easier to find a fixer-upper duplex that you can renovate and generate enough monthly revenue to realize and annual ROI of give or take 24% - this is harder to do that with SFHs, but still possible.

Mihir Bhimaraju · Answer

@Curtis Robbins We don't have as many 8 units or less in our area as there are in say, Ohio. The ones that do exist are gone pretty fast ( overpaid sometimes) and off market other times. Your best bet would be a duplex, but it depends what area you get them in. Some of the lower prices duplexes you see are a) in bad shape and need more work than what it's worth or b) they're in rougher areas where the turnovers are high and residents are rough with the property.

If appreciation and less hassle and lower capex is your goal, SFHs  are preferable. If cash flow is your only goal, multi units should work better, but the no. of items to replace over time also goes up. So, it depends on what works best for you. :)

Curtis Robbins · Answer

That's very interesting insight Ryan. Appreciate it.

In hindsight, it seems almost obvious when you think about it. Also has me wondering about the profitability of building duplexes (or more) on spec. I've seen more and more of those over the past year. Even in areas like Hamilton county (saw a set of 8 duplexes go up in home place last year). Was kind of surprised to see those.

SFH vs MF is there a winner?

Most Popular Reply