Investing in 4-plex vs 5+-plex properties?

7 Replies

As I've started looking into multi-family properties, Ive come across a number of people who are trying to promote their approach to investing. One of these has been that there are some who are big fans of 1-4 unit properties, and some are fans of 5+ unit properties. Some of the investors I've come across have even gone astronomically higher than 5 units and heavily pushing commercial instead of residential. I've also read varying opinions on residential vs commercial loan options and issues with both.

 My question to the BP members is, what made you choose the property size you did to start with? Were there specific reasons or was it what was available?

@Kevin OBrien

I think it comes down to what you’re better equipped to handle. If all things are equal (except the number of units) and you can satisfy the down payment on commercial then it makes sense to go for more units (same amount of work for more reward). if you have better connections, lenders, and leads on <4 units then I’d try and pick up a few more of those.

I had a small commercial multi family last year with multiple buildings on one lot. It was difficult to get the refi completed so we ended up selling. The small 2-4 units were easy home runs on the refis since our lenders were comfortable with those.

I would suggest that it should be based on finding a deal that works that you can afford and finance. The number of units, once you decide you are investing in a multi unit, is irrelevant.

You goal is to purchase something within your financial ability that will produce positive cash flow. Do not begin by immediately eliminating possibilities by placing arbitrary restrictions on the property.

New investors that believe one tenant is easier to manage than 30 does not understand the business and has not prepared themselves to invest. It is not about tenants it is about financing and goals.

@Thomas S. Did you start with a SFH, or multi? What advice would you have if you could go back and start over with the knowledge you have now? I have heard many opinions of where to start. Some also suggest working to get multiple people to invest in your ventures to acquire a larger property. This seems like it could be difficult finding those who would be willing to loan you money on your first acquisition. Thoughts?

@Kevin OBrien

Nothing specific, a couple lenders were turned off by the fact that it had a couple large single family homes converted to multi familys. At least thats what they said.

We were like 100sq away from subdividing the property and selling each house off separately as a 2-4 unit building on the mls but the city wasn't playing nice and and didn't want that to happen.

But things worked out :)

@Kevin OBrien I started out with a SF and moved up to MF. If I was starting again I would start with a 4plex and move up from there especially if you can use it as a primary residence you can get FHA financing. REI is a long game you'll learn and move forward, there's benefits to both SF and MF it's all up to your goals and what you'e comfortable with at the time. The key is once you decide is to take action. Happy Investing!

@Quito Keutla

Thank you for sharing your experiences. Do you still have any SFH in your portfolio? Ive read that some investors like having diversity in their properties, but have also heard others say the long term equity return is too slow of a strategy. Maybe it depends on your goals and comfort level.