First Rental Property.. SFH or Duplex?

Question

Hello BPers! I am a new real estate investor looking to buy my first rental property in 2021. Based on your experience, what are your thoughts and experiences on buying a SFH or a duplex as a first rental property? Thanks in advance!

Matt J. · Answer

Really can't go wrong either way. Both qualify for "residential" financing, so better terms than you'd get with properties 5 units or over. The pros with the duplex are you have 2 units with essentially one set of "cap ex" features like your roof, heating system, etc. Also, if you have 1 vacancy, hopefully your other unit is occupied so you're still collecting some rent while you lease up the other. The cons are you have 2 units right on top of each other or right next to each other, so potential for tenant conflicts and 2 units to send you maintenance requests instead of 1 unit like you'd have with a single family.

With single family, if you have 1 vacancy, you have no income. But, if you buy in a neighborhood with low vacancy rates you can be a little safer. Fewer maintenance calls hopefully, and the other thing that a lot of people don't consider is when you go to sell, you're able to sell to both retail buyers and investors. With duplexes or more, your market when you go to sell is a little more limited.

Pros and cons to both, it really depends on what your goals are.

Matt J. · Answer

When analyzing a deal up front, I look for deals that do meet the 1% rule, and once I see it meets that and do a deeper dive, I strive for 15-20% CoC returns. Every market is different though, so you'll have to figure out which criteria matter to you and stick to it.

Eric Inigo · Answer

Thanks Matt and appreciate the pros/cons you listed! I'm looking to cash flow and eventually refinance and buy into another property. On a side note, with all of the valuation methods out there (1% rules, COC, CAP rate, etc.) when analyzing a deal, which ones are the essential/dealbreakers for you?