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

Question

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

Steve K. · Answer

$80-150k properties are not going to have high enough rents to cover operating costs over time. Even if your magic spreadsheet shows $200/ month positive, over time you will lose money due to the rent not being enough to cover maintenance, repairs and capex on a property, and that’s not even factoring in the inevitable tenant or PM issues. Rule #1 is location location location. Save up until you can afford a property in CA would be my advice. Ideally 20 minutes max from where you live. Good luck!

Becca F. · Answer

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.

Mike Arias · Answer

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.

Becca F. · Answer

I'll re-word that "if you live an expensive location, e.g West Coast (California, Oregon, Washington) or East Coast (NYC, Boston, cities in NJ)" it's better to house hack or find something within driving distance (2 to 3 hours) where you can check on the properties. Can you buy a duplex in NJ and live in one side and rent out the other?

As far as off market deals, I think many of those will need renovation. Have you ever done a renovation locally? Do you have a solid knowledge of construction (e.g. signs of a weak foundation, removing knob and tubing wiring and replacing it with new electrical, costs for drywall, $ per sq ft for LVP flooring, that you should get a sewer line scope...the list goes on). Doing a renovation out of state is more difficult than locally where you can be on site often. If you don't have a trusted team OOS you can easily be overcharged or worse, your property vandalized or things stolen while vacant, etc.

If you're looking in the same price range was the OP, that $80k to $125k, that is going to be really tough and for a multi-family that will be a piece of junk property, to put it nicely.

Numbers on a spreadsheet can look nice but in reality, you'll be paying out for change orders on a renovation, etc. I was supposed to cash flow $100 a month on my Class C - it's zero and -$300 to -$500 when tenant calls for repairs.

Ask these OOS people how much property taxes and insurance is for the cities you're considering. For Indianapolis, it's 2.77% property tax rate (Marion County, which is Indianapolis), and 2.7% (Hamilton County, where I have my Class A rental). My property taxes went up 17% in the last year for both homes. Indy Investors pay a much higher property tax than primary owners (no homeowner exemption and other exemptions) - I don't know about the other Midwest states. The insurance costs for Indy are reasonable.

Todd Anderson · Answer

@Christopher Rubio,

I started over 30 years ago with value adds and Class c properties.  They take a lot of time and skills to manage.  When I talk to investors looking to start today, primarily OOS investors, I recommend something totally different.

I have lately found that Build to Rent for out of state investing has many more advantages for the investor.  First off,  you get to start with a property that is new, has a warranty, and should require much less maintenance.  There is also a situation now that new construction,on average,  is now on average less than existing homes.  Most importantly new construction can offer incentives that can solve for the problems investors are having in today's market.  The builders that I have worked with are offering free property management and rate buydowns as low as 3.75%. With this type of incentive you can find cash flow.

These are properties that we find also get rented faster and for longer, because they are new. When you can find properties like this in markets that are growing in both population and employment, then you have the opportunity to get in the way of appreciation.

I would suggest to any new investor that i talk with to look into Build to Rent.  It may be something that works for you.

Let me know if i can answer more specific questions.

Best of luck.

Joseph Tadres · Answer

Hey Christopher, I started with a duplex primary residence. That's what I recommend, I was able to pull a HELOC on that and buy two more investment properties. The first one was a flip, and the second was a rental.

Christopher Rubio · Answer

@Joseph Tadres

That’s a great idea — starting with a duplex as a primary residence makes a lot of sense, especially being able to live in one unit and have the other help cover expenses. Pulling a HELOC to fund more deals sounds like a really smart way to build momentum without having to start with a ton of cash upfront.

I’m still learning about how HELOCs actually work though — how exactly does that process go? Does the HELOC come directly from your equity in the duplex, and how are the payments structured once you start using it? Do you just pay interest on what you draw, or is it treated more like a traditional loan?

I’m really curious how you used it to fund those next two properties — especially how you managed paying it back while still cash flowing on the rentals.  Thanks for the info!

Remington Lyman · Answer

Welcome to the site. I started with a house hack

Mike Arias · Answer

Hi Becca, I am not in CA but what difference does that make? I am in NJ but looking in Ohio. I have done analysis and you are definitely right, buying at the prices off MLS, there is no cash flow on SFH [I am using the listed price but in reality that is a max price so unless the market is hot, offer prices will be low].  However I am seeing CF on duplexes in Columbus.  I think the key is working with a real estate investor.  Either low ball offer (if acceptable), off market deals or pocket listings are the only way to find a CF property. Also rates will go down eventually so refinancing should increase CF even it is minimum.  Thanks for the information as it is helpful. Indianapolis is also a market I am interested in the future.

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

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