Start with Single Family or Multi-family?

Question

Hello,

Should I invest in a single-family or multifamily for my first property? I hope to continuously househack using fha loans and refinance to purchase additional properties several times. I know this is a very market and situation-dependent question, but generally speaking, I'm curious which type of property is more suitable for this strategy. Here are the benefits I have heard from both sides:

-By starting with single families, you are able to build equity faster. By building equity, you can tap into it using cashout refiances or helocs to invest in additional properties. I've heard that a common strategy is to start by building a portfolio of single families and use the equity in them to invest in cash-flowing multifamilies later on.

-By starting with multi-families, it is much easier to qualify for an FHA loan for your next property. A mortgage banker recommended that I start off with a 4 plex, then 3 plex, then work my way down from there. By doing so, the underwriter will be more likely to approve the loan because I am "downsizing."

I'm looking to invest in my first property later this year using an FHA loan, so I am interested in which property will better set me up for the future. I'd appreciate any input. Thank you!

Chris Davidson · Answer

@Kyle Marsh,

What @Nino G. said was spot on. House Hacking is great to get into investing, but if you are doing SMF do you want to be beside your tenants every day and night for the next however many years? If not go the SF route, or if you are good with it for a bit go SMF then SF.

Investing is not just a numbers game. It is very personal, especially with real estate. Not every good deal is good for every investor.

Lastly, if you are doing a SMF house hack I would recommend a property manager just to allow some separation of home and work life.

Avery Heilbron · Answer

@Kyle Marsh Doing multiple househacks year over year was also what I thought my strategy to be. I am currently on my second one. The first I bought was a duplex and the second a 3 family. Some things I now know is:

1) To refinance out of the FHA for 2 units or less I only needed 95% LTV - obviously lender dependent

2) To refinance out of the FHA for 3-4 unit buildings you need 80% LTV  - lender dependent

3) Underwriters don't like you moving from one property to another within the same town/area without a reason and building a real estate portfolio is not a good reason for them. They would want to know if you're moving closer to work, need more space because you're having children, need to move closer to your parents, etc.

4) Moving all the time sucks

So I think you can do this 2-3 times maybe even 4, but by then you should probably be able to start doing more traditional investing. As for your question if you want to do more househacks more often it is easier to refinance and then re-use the FHA with less units, but 3-4 unit properties might get you better results. I'd personally rather have two 4 unit buildings that I purchased 2-3 years apart than four 2 unit buildings I purchased every 12-15 months.

Feel free to send me a PM if you want to hear more about my experience. Happy to chat!

Nino G. · Answer

@Kyle Marsh

Hi Kyle. If you are planning to use FHA loans then I guess you are taking about live in investments. I don’t have any experience with FHA loans and can’t advice how to best utilize them. But let me offer you few points.

You question is very finance/mortgage based. But live in property is not just numbers game IMO. It’s also lifestyle/personal preference based. I would advice you to think of how you see your life in the next few years and be honest with yourself.

Are you handy? Do you want to learn how to renovate property and manage renovations? Is that something you are interested? If yes you could get old property that is still livable and do

slow/live in flip. At the end of 1 year it should get you a decent equity in SFH and you won’t have to deal with tenants and be in full control of reno.

Is landlording what you are interested in? If you self manage, you understand you will have to familiarize yourself with local laws, screen and manage your tenants. Is this something you are interested in? Do you understand that a tenant is very different from a next door tenant. What if your tenant defaults and relations between you two don’t go well, are you able to handle that while living next door to them. MA is tenant friendly, you won’t be able to get rid of bad tenants fast. Are you ready for that?

Even if you have good tenants, annoying nuances can come up in multiplexes. I remember one landlord was complaining in this forum, that her upstairs tenant, an elderly gentleman had bladder problems and during the night, he would go to the bathroom often. Floor was squeaky and every time tenant used bathroom the landlord downstairs would wake up. Are you ok to deal with those annoyances?

If you feel ready to take on both challenges, the rehabs and landlording next door, you could also go after value add multiplex.

I think people have better chance of success by doing what they like. What do you like?

If you are not going to live in the properties you buy, then most of these points are less relevant and then pure numbers become more important.

Michael Plante · Answer

What is your goal/goals?

that will help answer your question

Danny Webber · Answer

Neither is better depending on what you find. Look for a good deal in either class.

Also, look for an sfr you can drop a travel trailer on as an airbnb or rentable space

Start with Single Family or Multi-family?

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