Small Multi-Family vs. Single-Family for a First Out-of-State Deal?

[Christopher Rubio]

Hi BP community,

I’m a new investor based in California, looking to start my portfolio through out-of-state investing. My target is the $80K–$125K range in landlord-friendly markets with steady job growth. I’m most interested in BRRRR and buy-and-hold rentals, and I keep going back and forth between starting with a small multi-family (duplex/triplex/fourplex) or a single-family rental.

Here’s where I’m stuck:

• SFRs seem easier to manage and may be less intimidating for a first deal, but the cash flow might be tighter.
• Small multis could bring stronger cash flow and efficiency, but I’ve heard they can be tougher to finance, and vacancies or tenant issues could hit harder if I don’t have a solid team yet.

For those of you who’ve been down this road already:

• Which one did you start with, and why?
• Looking back, would you do it the same way?
• What do you think is the best path for someone investing out of state for the first time?

I’d love to hear your experiences and lessons learned — it’ll help me take action with more clarity and confidence.

Thanks in advance,
Christopher

[Becca F.]

Quote from @Mike Arias:

I am interested in this too. Similar situation. This is my thinking (and this would depend on the local market): My preference is SRF/SFH not only for the reasons you mention but because there is better appreciation. Supply is tighter for SFH and demand is higher. However, I will be open to a duplex if its a very good deal (meaning my minimum standards will be much higher). Of course, your local investor friendly real estate agent can confirm.

These are not final but just example of what I mean. For SFH, looking for minimum $150/month cash flow; 10% COC; 11% NOI. For duplex, it would need to be $300/mo cash flow; 12% COC; 13% NOI minimum. The CF and COC are market dependent and I know what I want my minimums to be. For the NOI %, I still need to figure that out.

Curious what others say. 

Are you in California?  I don't have multi-family out of state but If that's the cash flow you're looking for, there is no cash flow. I run my numbers using 20% down. Anything will theoretically "cash flow" if you put more down like 40% to 50% down or pay cash but then you're locking up a large amount of money into a property. 

I looked at 2 to 3 units in Indianapolis metro area. I wound up buying Class C SFH in 2023- the feedback from property managers was that more desirable tenants will pay more rent to not live next door to someone with shared walls/ceiling/floor. Two years later, there is no cash flow and I'm losing money from constant repairs (the only positive side is my large passive losses on my tax returns). Sold one SFH and selling the other next year (when the lease expires).

I cash flow from a Class A SFH in a great Indianapolis suburb with excellent school district but I bought it in 2013 then did a refi during COVID, have a great tenant who takes care of the property and I self manage now. If I was buying that house now, it would be negative cash flow.

With the OP looking in $80k to $125k range out of state, you'll be buying Class C properties thousands of miles away in the Midwest or South. If you're in California please don't do this. 

AirBnb and mid-term rentals (you need to furnish it and pay for utilities and WiFi) and rent by the room (self manage and deal with multiple roommate tenants) can get higher rent but it's more work. Property management fees eat up money and PM fees will be higher for short term and mid-term rentals than long term rentals. Those strategies are market dependent. 

If you're looking for cash flow, I recommend starting a business or buy some index funds. Far less stress than buying cheap properties 2000 miles away with lots of issues.