I am looking to purchase my first REI very soon. For those that may know the area I am looking in South "Suburbs" of Dayton OH. I am trying to debate between a duplex and a single family house for my first purchase.
@Alan Miller I am not in your area, but I have always seen duplex properties to bring in a better ROI than SFH
There are pros and cons to both decisions. Much depends on what you are looking to gain through a real estate purchase.
If privacy is important to you, then definitely look toward SFR. It can be easier to sell SFR down the road and they tend to appreciate faster.
On the flip side, however, finding a good duplex and a good dependable tenant can significantly offset ownership costs. Some investments are able to pay the mortgage, taxes and insurance through the tenant's rent. This could significantly lower your living expenses - that is unless the tenant moves out.
If you are not planning on staying in that neighborhood for long or are considering a major life change (i.e. marriage, job change, children etc), owning a duplex could allow you to shift from homestead to investment property and benefit from the dual income stream when you move.
I am actually married and we already own our home we live in so this will be strictly investment and we won't be living in it.
...SFR are easier to liquidate.
@Simon Campbell brings up some good points about resale. In my urban market there are more MFH than SFH so resale of MFH is not really a issue... but I forgot about that being a factor.
I'm not in your market either but I usually recommend new investors start with SFR. MFcan potentially give you more cash flow and higher ROI but as @Simon Campbell points out, they come with some unique sets of challenges that new investors might not be prepared for, namely, more transient tenants, higher vacancy rates and more repairs at turn over.
@Alan Miller Here's a list of things to consider.
- A single family has a larger market than a double when it comes time to sell.
- You have more single family properties to choose from.
- A typical tenant in a single seems to stay longer than in a multi reducing turnover time and costs.
- A double or small multi will bring in more cashflow.
- A double is more likely to have neighbor conflicts if it is an over/under
- Also consider the condition at the purchase. A double will cost more to fix (more kitchens and baths) than a single.
An RE investment is all about the numbers. I've looked in Centerville and Bellbrook for properties, but have not found any with good numbers for rentals. Kettering, Miamisburg, West Carrollton, Moraine, Middletown and Franklin have some good ones come available periodically.
If you'd like to talk more about the local RE market, feel free to give me a call.
In Dayton - duplex
Originally posted by @Ben Leybovich :
In Dayton - duplex
What are you asking or saying? City of Dayton has duplexes with great cashflow.
Yes - duplex would be the way I'd go in Dayton :)
Here's a checklist I would use for a Dayton duplex that's good for cashflow.
- Rental neighborhood, no warzones.
- Rent ready or close
- No upcoming large expenses (roof, windows, furnace, etc)
- Double pane windows (pref) or single pane with storms (acceptable)
- No wood siding.
- Tenants pay all utilities
- Monthly rent 800-900 for a two bedroom, 1000-1200 for a 3 bedroom.
- 2% rule. $800 gross rent = 40K max price
- Reduce price by major expenses, and to correct items above.
There's some variation depending on the submarket, but this list would get someone started right.
in my area, duplexes & sfr cost about the same but the income from the 2 units is much higher. You will find better returns with the duplex.
Can you elaborate on the 2% rule? Like I have said I am extremely green in real estate. The way I understand it is you should get 2% of the price of the place in rent?
@Alan Miller Your assumption is correct about the ratio. BUT...... it's not absolute. It gives you a quick guideline to a property. It assumes a lot about expenses. I use it as a quick filter for a neighborhood before I take the time to do a more detailed analysis.
As the market changes, the % will need to change also. Right now, we are still in a buyers market, so there are good deals available.
The old school rule was 1%, which is closer to break even than profitable.
I wrote this for another post, but applies here too:
There are pros and cons of investing in multi units and SFHs. You have to see what fits in your investment strategy and align yourself with people who have similar goals.
For example, you have $200,000 to invest. You could either purchase 4 SFHs for $50,000 each and each will rent for $800/month. Or you could invest $200,000 in a 4 unit property where each unit rents for $800/month. In both scenarios, the gross cash flow is same.
Benefits of investing in 4 unit:
1) With SFHs, you will need to replace 4 roofs. With 4 unit, you only have to replace 1 roof. The roof for SFH might be around $5,000/house for total cost of $20,000, but the roof for 4 unit will be around $8,000-$10,000, so around $2,000-$2,500/unit.
2) With SFHs, you will have 4 plumbing lines to worry about. With 4 unit, you only have 1 plumbing line. The plumbing for each SFH might cost around $3,000/house for total cost of $12,000. The plumbing for 4 unit might cost $6,000-$8,000 for per unit cost of $1,500-$2,000.
3) One siding/exterior to replace/maintain vs. 4 for SFHs
4) Taxes for 4 SFHs combined will be less than taxes for 4 unit (at least in my area)
5) One tangible asset to manage vs 4
Benefits of investing in 4 SFHs
1) Tenants responsible for all utilities
2) Tenants responsible for lawn maintenance and snow removal
3) Generally, tenants tend to stay longer in a SFH vs an apartment
4) More exit options vs 4 unit. You can sell a SFH to an investor or a homeowner; however, more likely than not, you will have to sell your 4 unit to an investor
5) Slightly better appreciation
It really comes down to the cash flow and your holding time.
If the property is to be used as an investment - then cash flow is your main concern. Focus on cash on cash returns and monthly cash in pocket after all expenses, capital reserves and mortgage.
If a property can cash flow well, then look at the resale/holding period. If you are mainly looking for portfolio properties, then resale is less of a concern. If your holding period is less than 5 years, you will need to take into consideration buyer demand and average appreciation rates for a SFR vs. MF.
If you plan on getting more rentals in the future anyway, just go with either type of property. Just have both types in your portfolio as you build it.
I have two duplexes so far...3rd one under contract.
But next, I want to start adding SFRs to the portfolio. As said, those tenants tend to stay longer and it's probably a different group of people applying than those for apartments.
Diversifying your portfolio is very good advice - but as an investor - you need to make sure that every property cash flows. Never add a property for diversification if it will suck cash from another property or if an investment in another property like those in your existing portfolio can provide greater income.
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