Is the multifamily apartment always a better deal than a single family home if both types of properties are in same neighborhood, same price? How do you look up comparative prices on multifamily homes? Rentometer has a max limit search of 6 bedrooms and doesn't have a triplex filter. I'm considering between Cincinatti residential properties that are duplex/triplex vs single family.
Is the multifamily apartment always a better deal than a single family home if both types of properties are in same neighborhood, same price? How do you look up comparative prices on multifamily homes? Rentometer has a max limit search of 6 bedrooms and doesn't have a triplex filter. I'm considering between Cincinatti residential properties that are duplex/triplex vs single family.
No, the multifamily may not be a better deal. You have to look at the financials. These same things exist in my area, and you'll have something like:
house for 100k renting for $1k
house converted to triplex for $100k renting for $1500
Now on the surface you'd say the triplex is a home run. But as you look into it you see:
no separate water meters so the owner pays
no separate electric meters so the owner pays
no separate gas meters so the owner pays
have to pay trash
have to mow/handle snow
higher property management fees
etc
So the single family might be making way more money at the same price, despite the fact that the triplex has $500 a month more rent. And then you have to look at the roof and the fact that 3 units has 3 times as many furnaces/ac's in some cases that may need replacing.
A lot properties look like gold mines on the surface when they're really anchors.
@Susan Tan Hi Susan - there's pros and cons to both single and multi-family:
Single Family - Cons
- if the tenant leaves, you have a vacancy you have to fill and are left paying all expenses in the meantime.
- some tenants will not honor the lease and won't keep up with the lawn or snow removal
- slower ability to scale: it'll take a lot more doors with singles vs. multis to reach your number of units or cashflow in mind
- value is dependent on the real estate market vs. current income being generated
- you can only get loans for up to 10 houses, sometimes less with certain lenders, before having to switch gears and find other ways to finance
Single Fam - Pros
- most leases are set up for the tenant to mow the lawn and do removal
- the appreciation is usually decent if you buy in the right area
- usually more affordable for investors who are just starting out
- easier to sell if necessary
- easier to analyze the property and run the numbers for the newbie (comps, expenses, expected rent, etc)
Multis - Cons
- harder to sell if necessary - mostly only investors will be interested in buying the property
- you'll have to be sure to budget for lawn care and snow removal (can also be a pro and not con tho)
- if it's more than 5 units, most typical lenders will not be able to help you and you'll have to look to commercial or other means
- it may take longer to run the numbers when analyzing the property because it depends on the generated income, talking to the right people to get an idea of what it could rent for if certain repairs/rehabs are made, knowing if/how to lower some of the expenses, etc - this is again why it's important to have knowledge on multis and/or a good team to help you with this, which is why it's not always newbie-friendly
Multis - Pros
- if a tenant leaves, you still have at least one other tenant still paying some or all of the expenses
- the value of the property is tied to the income it's generating, and not the current real estate market, aka YOU have the control over the value of the property, not the market
- you have more than one unit under one roof generating cash flow, and therefore the ability to scale faster
- commercial loans, in terms of paperwork, are easier to obtain
Truly tho, one can't say that multis or singles are always better in ANY given area. It always comes down to the numbers. Even if the singles and multis are the same price, you need to analyze them to really know if they're a good deal or not. Find out what they would rent for, the expenses, loan terms (talk to bankers/credit unions/PMLs/hard money), rehab costs, etc.
You can always have a mixed portfolio of singles and multis - it's just up to you on what your end-goals are for your business and to make decisions accordingly.
As for finding out what the value of a multi-unit, talk to other local investors, look at other units in the same area and what they're renting for by checking sites such as realtor.com, rent.com, apartmentfinder, etc. - and talk to your property manager and ask for their estimates for a property or general area you're interested in (this last one is a huge resource to have on your team).
Susan I always follow one simple test.
If you have 1 single family house and the tenant leaves how much of the mortgage are you responsible for?
Now if you have a triplex and just 1 tenant leaves how much are you responsible for?
Is the multifamily apartment always a better deal than a single family home if both types of properties are in same neighborhood, same price? How do you look up comparative prices on multifamily homes? Rentometer has a max limit search of 6 bedrooms and doesn't have a triplex filter. I'm considering between Cincinatti residential properties that are duplex/triplex vs single family.
No, the multifamily may not be a better deal. You have to look at the financials. These same things exist in my area, and you'll have something like:
house for 100k renting for $1k
house converted to triplex for $100k renting for $1500
Now on the surface you'd say the triplex is a home run. But as you look into it you see:
no separate water meters so the owner pays
no separate electric meters so the owner pays
no separate gas meters so the owner pays
have to pay trash
have to mow/handle snow
higher property management fees
etc
So the single family might be making way more money at the same price, despite the fact that the triplex has $500 a month more rent. And then you have to look at the roof and the fact that 3 units has 3 times as many furnaces/ac's in some cases that may need replacing.
A lot properties look like gold mines on the surface when they're really anchors.