Single Family vs Duplex/Triplex Sioux Falls

12 Replies

I already own a single-family house that I reside in. Now, I am planning in buying investment properties in Sioux Falls area - wondering if single-family is better than duplex or triplex property on its return and rental turn-over. Please share from your experience. 

Hey @Ike Hale I personally prefer multiple unit properties. One HUGE advantage is the vacancy rate. If you buy a Triplex, and one person moves out, you still have 2 more tenants paying the bills.

Hi Ike, I have both single family and multi family units in Sioux Falls. I believe it is more about the property condition, location, rental price point, amenities, etc., than specifically single family or a duplex or triplex on its return. If you have a nice place at a competitive price the tenants will stay longer. Traditionally, we have lower turnover in the single family homes.

@Ike Hale .  Asking "which is better" is sort of like asking which desert it better: ice cream or pie? depends on a lot of things.

First, I want to address a standard line I've heard (and see in this thread) that vacancy is less of a risk.  Baloney!  If you have a tri-plex, you have three units.  If you have 3 houses, you have three units.  Any time ONE of those goes vacant, you're only getting 66% of your rent.  If you took out a $150,000 loan for a tri-plex or bought three houses at a loan of $50,000 each, it's the same $150,000 that has to be covered and the same rents that are covering it. There is literally no different when it comes to vacancy.

Multis often do have higher turn over, although as mentioned above very well-located units probably won't.  However, the same is also true of well-located houses.  Multis suffer the problems inherent with people in close living spaces sharing amenities.  Who wants to live with noisy neighbors one wall over, or above or below?  Yes, you can have noisy next door neighbors with houses, but there's more of a buffer zone.  Also, in most states having a multi means you're responsible for things like pest control, because no one can prove who brought in the bed bugs or roaches.  Typically, other things are provided like trash service, snow removal, lawn mowing....all of which eats into profits.  When someone clogs the main drain line to the street, which tenant out of the three units will fess up and pay the $200 bill to snake the line?

Where you do have the advantage with multis is bulk discount:  one location, one roof, one lawn, one insurance bill, and often you can get economics of scale when it comes to repairing/replacing major items.  That helps offset the higher  turn over, the bug treatments, and the expected little goodies the land lord pays for.

At the end of the day, vacancy rate is a vacancy rate.  Vacancy should always be factored as a percentage of total rents spread among all units.  And when you look at it that way, it doesn't matter if you have 100 houses or 100 apartments.  5-7% vacant is 5-7 empty units.  Get them filled!  

@Erik W.

Vacancy is not Vacancy. I already pay for the water,sewer, garbage, mowing, and snow removal in my apartments. When a single family house becomes vacant, these become added expenses for me.

@Justin Thiesse , thanks for the response.  Granted, if we had time I could pick out a dozen or so other things we haven't talked about yet....and I'm sure you could too.

My main point is that the old argument against owning single family due to losing "all your rent" is faulty because it assumes a person only owns one unit.  The better way to look at it is how many units a person owns, what is the cost to operate each unit, and how much rent is each unit generating?  10 SFHs can produce partial income just as well as 10 apartment units when there's a vacancy.

Originally posted by @Jake Stuttgen :

Hey @Ike Hale I personally prefer multiple unit properties. One HUGE advantage is the vacancy rate. If you buy a Triplex, and one person moves out, you still have 2 more tenants paying the bills.

Single family doesn't have a higher vacancy rate than multifamily. A triplex has three times as much tenant vacancy as a single family. So although only 1/3 is empty at a given time, it happens three times as often. (I am talking statistically averaging vacancy assuming the same rate).  So no difference in vacancy rate.

I do agree having more units spreads risk, but that can be accomplished by owning a bunch of houses too. 

@Joe Splitrock While yes, you are correct with that. But that has not been my experience with the 8 duplexes I own. If one person moves out of the property, the other's rent still covers my mortgage vs with a SFH, if the tenant moves out, I'd have to cover it. Yes, I get what you are saying that you can cover it by getting several SFH. However, I also found it's a pain in the butt managing several different properties vs having more units per property.

To each their own though, everyone has a strategy they prefer best

The above statements about vacancy is correct if you have multiple rentals, but if you don't then it's obviously 100% vacancy. I'd start with a duplex to minimize vacancy issues and then experiment with SFH later on to see if they work for you.