House Hacking: Single Family vs Multi Unit - Which is better?

[Al Seward]

Hello everyone,

My wife and I are new to investing, and we are considering house hacking. We have been looking at 3 and 4 units in Baltimore and DC. However, I have been thinking that it might be better to buy a home and convert the basement into a rental unit with a separate entrance, a washer/dryer, and a kitchen. 

My reasons for considering this approach are as follows:

1. It is a safer way to get started and mitigate risk.  If we can't find a tenant, we will still be able to pay the mortgage. We won't be in trouble if we have no tenant or if someone stops paying.

2. If we buy a property in an A or B neighborhood, we can still gain equity. (However, from my research, Baltimore City's equity is not that strong, so it looks like more of a cashflow opportunity, but even that can be dicey in the city. From what I am hearing here on BP Baltimore can be very tricky. DC seems to offer good equity, but all the places we can afford (3-4 units) are in THE HOOD. Most of them need work, and many are going for north of $750k-$800k and up. Also, in those zip codes, even Section 8, doesn't seem to pay that well. I am thinking a good idea might be to buy in the suburbs near DC (maybe in Montgomery, Howard, or Prince George's County.)

3. I am also thinking about maintenance. If something goes wrong in a single-family property, it is easier to fix, than a 3 or 4 unit.  I even thought about buying a new build because of all the incentives builders offer and converting the basement into a rental unit. I understand that new builds don't typically have equity, but if they are in appreciating areas, that will change. Plus, the fact that everything is new and a lot of the big-ticket items are under warranty may mitigate significant expenses for costly repairs. Not to mention, new builds may be more attractive to renters.

Final thoughts: I don't mind the temporary discomfort of house hacking (though I very much would like to have my own space; my wife and I have never lived in a single-family by ourselves since we have been married.), but I do not want to live in a neighborhood that is not safe. That is priority number one for me.

Details: We have about $120k in savings, no debt, and our average credit score is 760. Can anyone share their insights or thoughts on this?

Thanks, -Al