Investor · Madison, WI · Member since 2013 · 97 posts · 10 votes
First off, If this question has been asked already, I apologize! I searched far and wide to find a post that matched my question but could not find one that addressed this, so I will throw it out there!
I currently have owned a SFH rental for the past 8 years. Man, had I been on this site before I decided to jump into this game, I would have done things waaaaaay differently! That said., I have learned a lot in 8 years, as well as from this BP site. My niche, as I have decided, is going to be in small residential multi family investments. (for now) Is there a large learning curve you would say moving to a duplex or even a fourplex?? I am aware of some of the common differences such as, 2-4 different families, and demands for each, dealing with tenant-to-tenant issues, etc. From my experience it is really the same as issues I would be dealing with for a SFH just multiply by 2 or 3 or 4 times. The upside, is more cash flow, 1 vacancy does not account for 100% of PITI, etc. Can I get some feedback from those who have made the "jump" to a duplex, or fourplex and how hard or easy was the switch. What advice, tips, tricks, and successes can you share? Thanks, and just cant say enough about how great a resource this site is!!
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
12y
@Douglass Belt the big difference is in the type of tenants you get. As a rule of thumb, MF has a more transitory type tenant. They don't stay as long and in many cases, don't take as good of care of the place. It is more of an apartment mentality whereas many SFH tenants had been homeowners themselves and if you're lucky, treat the place as it were their own. The cash flow on MF can be good, but tread cautiously.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
12y
@Douglass Belt the big difference is in the type of tenants you get. As a rule of thumb, MF has a more transitory type tenant. They don't stay as long and in many cases, don't take as good of care of the place. It is more of an apartment mentality whereas many SFH tenants had been homeowners themselves and if you're lucky, treat the place as it were their own. The cash flow on MF can be good, but tread cautiously.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
12y
You can lose your a%$ in multi-family. Ask me how I know (and see some of my other posts). Here's the biggest problem. If you make a mistake on the buy side and end up with negative cash-flow (yes, it is possible - again just ask me how I know), you will have a heck of a hard time getting out of the mess. Because most experienced investors will want to see your tax returns and will buy based on NOI. So, if you make your purchase based upon a NOI that you expect, and then the actual numbers are worse - guess what. Your value has gone down. Say for example that your NOI is $5000 less than you expected for whatever reason. Wow, your resale value is now $50,000 less. And then you go put it on the market to sell and your tenants catch wind of it and they all freak out and move out and .....
On the other hand, with SFH, you may be able to take a period of vacancy and sell the house to an owner-occupant who won't care about the NOI.
Be careful. Don't believe everything that you read about MF being less risk and all that crap. Trust me, you can lose a ton of money in MF.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
12y
And as a follow-up to my previous post. In the same town where I own those crappy multi-families, I know of another investor who has really struggled with his apartments, and another who has bought at least two sets of apartments that had been foreclosed on. My guess is that the foreclosures were a result of negative cash-flow. So, don't think that it can't happen with multies.
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
12y
@Bryan L. Absolutely you can lose money in MF, but as you said the key is to buy right. That is why this such a great site where experienced people are ready and willing to help you analyze a deal. Bryan, I assume this resource was not available when you bought your mf. Hopefully we can prevent others from having such a negative experience, and realize that there are good opportunities in mf properties.
Contractor · Valparaiso , IN · Member since 2013 · 604 posts · 327 votes
12y
Some additional cost you might want to consider are trash, landscaping, and utilities. In my SFR's these are all taken care of by the tenants, but this not always the case of in a 4 unit building. Many duplex tenants around me do take care of snow and lawn maintenance.
Be sure to check for individually metered units in MF buildings, it can be expensive to have them metered if they are not already done.
In multi's you now have the joy of listening to one tenant complain about another. Parking space issues, and higher turnover rates.
The biggest factor to me on a MF unit is exit strategy, a SFR can be sold to the general public, where 2-4 unit buildings can be harder to unload since they are typically bought by investors.
This doesn't mean a small multi can't be a profitable venture. I am looking to add a 4-8 unit in the near future, but I love my SFR and plan to add a lot more of them.
Investor · Madison, WI · Member since 2013 · 97 posts · 10 votes
12y
thanks everyone for the feedback and giving me some things to think about. Chris Adams, thanks for bringing up the yard work....good point I did not think about regarding having the tenants responsible vs. multi family and having to do the work myself or outsource. However, if I am making more in cash flow, perhaps that will allow me to hire someone to take care of that. Also, perhaps a tenant who would not mind being in charge of doing that for a discont in the rent might be an option.
When owning MF's, and the tenants dont get along, is that really your responsibility to referee? I am sure it does not make things pleasant but it seems to me it is their problem, unless things turn dangerous. Thoughts?
Again, thanks for the feedback and I apologize for the delay in responding. I have limited time to get on this site, with a full time job, wife and kids...which, is another full time job!! lol!
Alrighty then... You can lose money on anything Multis/SFH/Ranches/stripmalls whatever there is money to be lost everywhere, if you dont get a good deal. My experience is the exact opposite of @Bryan L. when it comes to multis. I've profited quite handsomely and rents have been rising every year in my area for the last 5 years.
When it comes to multis dont just buy any old "good deal" What makes it a good deal? Cause its cheap? I hear there are plenty of one dollar houses in Detroit for sale. Look for a place that is close to employment centers Downtown/Large malls. Look for amenities that are close by Parks/pools/rivers/entertainment districts and so on.
Is the area growing or shrinking you want to invest in?
growing = good shrinking = bad
Look at this link to find info on whether or not your area is growing or shrinking
Cleveland, OH · Member since 2011 · 400 posts · 223 votes
12y
@Douglass Belt, I exclusively buy multifamilies, because they are cheaper per rent dollar. You may find the opposite is true, especially where home prices are higher and PITI is higher than what the average family can afford. People tend to seek to subsidize their ownership costs in these markets.
Originally posted by @Jesse Hyder:
As Opposed to where I used live Cleveland. Shrinking -0.66% and has been for the last 50yrs? Jeez what a bad place to invest IMO.
One can make money in any market, up or down. Further, assuming that population will fall to zero is just as dangerous as assuming that population and prices will rise forever. Case in point: Chicago's population has fallen to 1920 levels and I don't hear much about their REI market collapsing.
Boise, ID · Member since 2014 · 40 posts · 13 votes
12y
@Christian Carson CLE isnt going to go to 0% pop but I see no reason to live/invest there. I've lived there, most of my family is still up there. I wouldnt put a penny into it anywhere. I've seen the whole rebuild Cleveland thing and thats great but I'm done living/working/investing up there its just not my type of place.
Cleveland, OH · Member since 2011 · 400 posts · 223 votes
12y
I see a lot more reasons for a regular Joe to choose to live in Cleveland than in Chicago or any other northern major city (cost of living, anyone?). Further, you intimated that Idaho's growth is largely because of people fleeing California. That doesn't sound like a sustainable growth model if you ask me.
And a boatload of other new stuff. Its growing, will it slow down? Sure but for now people want to move here and have been for the last 20yrs. Once you live here and see the mountains and river and the blue sky you wont want to leave. Most people dont! :-D
Cleveland, OH · Member since 2011 · 400 posts · 223 votes
12y
@Jesse Hyder , there certainly isn't anything wrong with investing Boise, and although I've never been there, it looks like a nice place.
If you want to read about similar new developments in Cleveland (including a new convention center and 6+hotels downtown), click the link to my blog below.
I just want to caution against basing one's investment model solely on the population growth of a particular area. That's what happened in California and those people ate their hats. Developers ended up creating entire communities that reeked of cheap construction and undesirable locations. There are so many factors driving real estate prices and rents that one would be foolish simply to pick the top growth area. It behooves everyone here to understand the demographics of one's "farm" area and who the customers (renters/buyers) are. Think of it this way: if you own a Cadillac dealership, would you rather have a location in Portland or Phoenix?
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
12y
biggest difference between SFR & MFH is the tenants will fight. Whether it be over parking or loud noise or dog crap in the yard. Unfortunatly I have actually had the police called to one of my units due to some dog poo issues. With SFR obviously none of these are an issue. I own both SFR & MFH. I prefer MFH due to increased cash flow but will not pass up a good SFR rental if it's cheap enough.
Detroit, MI · Member since 2014 · 40 posts · 5 votes
12y
It's amazing how ppl say Detroit is such a horrible place to invest in, I wonder how many of you guys have actually been here. Sorry if I get a little emotional at the fact, but I've lived in Cleveland too, I was actually born there & I still have quite a few family members still living there. Honestly there's no buig difference between Detroit & Cleveland at this point in time. I may be a new investor but I've always paid attention. Give it 5 years maybe even less & A LOT of people are going to be trying to get a piece of the action here in Detroit. Have you guys noticed the turn around in the last few years & how our new police chief & mayor are taking massive action to get this city back in order?
Cleveland, OH · Member since 2011 · 400 posts · 223 votes
12y
@Account Closed : people don't necessarily claim that Detroit is a bad place to invest, they're just saying it's not for the faint of heart. High returns = high risk. Detroit's problems come from two sources: an incredibly incompetent/corrupt government, and a total failure to diversify their industrial base over 50 years of decline. Cleveland's regional governments aren't the hallmark of efficiency but we do have very sound finances thanks to strict controls put in place after the 1978 default. Manufacturers haven't shown up on the top ten employer list for at least 40 years - now it's all about health care, law/accounting and insurance.
Detroit, MI · Member since 2014 · 40 posts · 5 votes
12y
@Christian Carson I really appreciate the fact that you broke it down better. That is very true, but do you believe that we will see a tremendous change for the better within the next 5 years like many of our local articles/papers say?
Cleveland, OH · Member since 2011 · 400 posts · 223 votes
12y
@Account Closed , absolutely! The Detroit bankruptcy is the first step in the right direction. Hopefully the emergency manager can do more house cleaning in order to get more professional, principled and energetic people into local government. Like I said above, it's not reasonable to think that population is going to drop to zero. Although Detroit has a lot of systemic problems that have just reared their head in the last ten years (most of them auto industry-related), they will be fixed, if nothing else because infrastructure can be had at bargain prices. I don't know if five years is a long enough timeframe to hope for tremendous improvement--it's a slow burn as we've seen happen in Cleveland since the mid-1990s which is what I consider to be the low point for city proper (and see, this doesn't at all correspond to population trends). Patience, hard work and civic participation is what it takes.
Boise, ID · Member since 2014 · 40 posts · 13 votes
12y
I suppose with any city you've got to ask yourself. What is the perception of the place from people who might want to move there? What does it have to offer?
Off the cuff people will say stuff like
New York: Money/Wall street
Boise: Potatoes
Detroit: Crime/Blight
Cleveland: Rock and roll hall of fame?
People generalize and put things/people/places into simple categories like that. Fighting against the tide of perception of the general public who might want to consider moving to a place will take a real sea change in public policy/local residents/jobs&income/infrastructure/crime and on and on and on.
Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
12y
@Douglass Belt - besides 2 to 4x more people under your roof? :)
You'll be fine. I went from single family homes to a 168-unit apt complex. My advice is to surround yourself with team members who have been in the duplex/4-plex biz for a long time and can guide you through it. Also, if you don't currently use a property mgmt company, I'd find a good one and build in their fees into your projections.
Real Estate Agent · Cranford, NJ · Member since 2011 · 149 posts · 54 votes
12y
I recommend that you first decide what your comfort level and desire is on whether to stay SFR or go MF - weigh all the pros and cons, and go with your gut.
Then, know your numbers! If you really have an understanding of your own market and future trends, and have a good team - doesn't matter where that is geographically - and you really have the numbers crunched for worse case scenarios, you can be successful. I reccomend digging into to RE valuations and finance to set yourself up for success, no matter what the investment is. You might want to check out some good RE Finance books. Just my thoughts, as I learned the hard way on my first SF rental as well. And it was the annual operating costs that hurt me most.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
12y
Here's my key point about the risks of multi-family properties. IF you make a mistake, it is much more difficult and costly to get out of that mistake. And if you think you are above making a mistake because you've studied a lot and you've run all the numbers and etc, etc, etc. - don't you think that I did all of that too? Seriously, I don't make mistakes generally. Ask anyone whose ever gone to college with me or worked with me. I work in a profession where mistakes are not very well tolerated. Been in that profession for about 20 years. Very much an analysis and detail oriented type of profession. Ask any of your friends who are automotive engineers and they will tell you.
Hopefully you will not make any mistakes and you will make great money. But if you do make that mistake (and it may take only 1), it is very hard to unwind.
On a SFR, you always have the back-up plan of selling it to an owner-occupant. And running comps for such a situation is MUCH easier than accurately predicting expenses, vacancy, maintenance, etc on a multi. If you get into a bad multi or your local market changes and you have to get out of the deal, you're not going to be selling to an o-o. You're either going to have to find another investor who will make the same mistake that you did (and you're going to have to be willing to let the guy make the mistake and still be able to look at yourself in the mirror every morning), or you're going to have to discount the price, or bring money to closing, or chunk a bunch of extra money into the property. Or wait it out for a long time until your mortgage pay-down gets to the point of where you can get out of it.
I'm sure that all y'all (that's the plural of y'all in the South if you didn't know) are smart enough and good enough that you will never make a mistake. Maybe so. And if you don't, then you won't ever have to deal with the issues that I'm talking about. But if you do make that mistake - it might only take one to take you all the way under.
And don't just think that I am an isolated example. In the same town where my multies are located, I know of apartment complexes that went into foreclosure (I guess those had "higher cash-flow" or something). And I know of another apartment owner who went years without being able to afford his property taxes (that "higher cash-flow" will do that to you).
Let me show you just how easy it is to lose your *** in multies. Let's say for example that you find an apartment complex that has a NOI of 10,000 (at least that's what you've been told,and that's what your numbers show as well). So, with a cap rate of 10, you value it at 100,000 and buy it with 20% down. You now owe $80,000. Wow, a major employer suddenly moves out of town and your vacancies now go from 10% to 15%. Next, your insurance goes up a bit (it always does) and also your property taxes. Nest thing you know, your NOI goes from 10,000 to 8,000. Guess what, your property just lost 20% in value too.
Yes, I know that some areas of the country saw SFR fall in value by 20% or more, but that's not normal and not really common. Most of the US didn't really see that much of a decline.
Anyway, I hope y'all can see my point. I'm not trying to discourage anyone from going MF, and I'm not saying that they are more risky (from the standpoint of the percentage that go bad). But it's a different kind of risk, and possibly a deeper dive on those that do go bad.
It's kind of like the difference in investing in stocks vs futures contracts. You can make or lose money in either, but you can lose a hell of a lot more with futures contracts.
In summary. It may be that the odds of you losing money in MF is the same as SFR (or maybe even less). But, IF you do lose money, the potential exists for you to lose far more money with MF. If you're still not understanding what I'm talking about, do a little study about investing in stocks vs futures contracts or short positions. It's a pretty good analogy in some ways.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
12y
How about this example. The odds of having a wreck may be the same for a professional mountain-biker and for an astronaut. Actually, the astronaut may be less likely to wreck. But, when the astronaut DOES wreck, there's a lot more carnage.
How about this example. The odds of having a wreck may be the same for a professional mountain-biker and for an astronaut. Actually, the astronaut may be less likely to wreck. But, when the astronaut DOES wreck, there's a lot more carnage.
But Bryan, the mountain biker may be all alone on his or her own, where the astronaut has a parachute, an escape pod and a whole team of support in Houston, so...
Yes I agree with you on a MF that's not cash flowing, your exit options are limited.
Your only options would be to sell it to an investor who has a better idea or vision on how he or she can turn things around, or an investor who's inexperienced and didn't know better.
Another option I guess would be to put in some additional $ to convert it to a condo, where you can sell each unit individually to either O-O or investor.