Is there a big difference moving from SFH to Duplex/Fourplex??

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Is there a big difference moving from SFH to Duplex/Fourplex??

Douglass Belt
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!!

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Mike D'ArrigoPro Member
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.

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  • DL Martin
    Rental Property Investor · Cincinnati, OH · Member since 2013 · 292 posts · 280 votes
    12y

    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.

    So "Example Guy" above buys a 5 Unit for 100k and puts 20k down. He finances 80k at 4.5%, ammortized over 25 years, which is $444 per month. His Prop Tax rate in Ohio is 2% annually which is $167 per month. He pays $25 per unit/per month for Insurance which is $125. So his PTI = $736 per month. His laundry pays him $125 per month but we wont count that because he uses that money to offset the trash/water and lawn maintence.

    Example Guy gets $400 per unit ($400x5 units = $2,000), but one of the five units is vacant, every single month, so he actually is getting $400x4 units = $1,600 per month.

    $1,600 - $736 = $864 per month positive cash flow.

    Example Guy may not be dancing in the street naked over his monthly $864 windfall, but even with his monthly trash/water/lawn costs, he is still not getting his *** handed to him.

    If Example Guy self manages and does the Rehabs (make readies?) and evictions himself, I don't see how Example Guy feels like he is losing his ***.

    Further, in 10 years, Example Guy will have paid the principle down to $58,000. If Example Guy gets his $^!% together, and gets that vacant apartment rented, and turns that extra $400 per month against principle each month, in 10 years the principle will be paid down to ... zero.

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  • Bryan L.
    Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
    12y

    I'm not even going to respond any more. I've tried to make my point in several different ways, using several different types of examples and analogies. My only goal here is to help the op (and others) see the potential other-side-of-the-story. I have nothing to gain in this at all, but I can tell you all from personal experience and from first-hand knowledge from other investors that I know, that it is very possible to lose your *** in multis. Yes, you can be very successful in multis too, but just don't think that they are some sort of risk-less or low-risk investment. Best of luck to you all.

    Actually, the last poster makes my point exactly when he refers to "one of five being vacant". There lies the trap of multis. People think that multis provide less risk because there are other units to absorb the vacancy. And in some ways, this is true. But what happens when 2 or 3 are vacant at the same time (and it WILL happen). Or, even worse, what happens to you when something bad happens that negatively effects all of your units? A major employer moves out of town, property taxes go up, insurance goes up, someone builds a brand new brick 4-plex across the street that is nicer than yours and they have lower rent. Don't ignore this type of risk. It may be less likely to occur, but if it does, the consequences are much more severe. I'm done. Y'all have fun. Consider my advice or not.

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    12y

    @Bryan L. I know your going to respond to this mention. You can't walk away from the thread. Lol, Your pot commited.

    The main point your trying to convey is a great point. & is pretty simple I don't know why there is such a pushback.

    It is something that investors new to MFH should consider before making the move to multi's

    If you have a SFR and it's not working out to well you can find a retail buyer more easily.

    Multi will be harder to get out of if they are not working out to well as your pool of buyers / exit strategies are more limited.

    That combined with the fact that multi's usually cost more $$ so if you loose you loose more $$.

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