Saw a pretty good deal on a 6 family property that is pretty much turn key and generating great cash flow.
What are the significant differences in investing in a 6 family over a 2-4 family property?
2-4 unit is considered residential. 5 or more units is commercials.
The way they are valued is not based on selling price per square foot of other rentals, price is based on the amount of income they produce. Cap rates.
Yep, and the biggest difference is 2 to 4 more tenants under one roof :)
Financing, 1-4 is conventional financing, 5+ will be commercial lending so the more attractive financing programs aren't available.
In some jurisdictions you may also have different building, health, welfare regulations being classified as an apartment than a single family dwelling (which is 1-4 family attached structures).
Chance of 100% vacancy is 16.6% less with each tenant, with a 6 plex, something really needs to be wrong losing all your tenants, chance of loss of income with a single family home, detached is 100% with one vacancy. Obviously!
Insurance will be more on the property, but likely less on a per unit basis.
A SFD will be more marketable and sensitive to utility and functionality than a multi-family structure.
As Jerry mention, the multi will lean more to the income valuation approach than a SFD.
There are advantages and disadvantages to management, all being in one place is handy, it's also having all your eggs in one basket. Quality of tenants may be, on the average, less desirable in multis than a SFD, generally people prefer to live away from someone else on the other side of a wall and will be renting as a lower option, less appealing that often translates into socio-economic aspects. Rents being the same, most will opt for a SFD instead of the apartment living, but this can certainly be influenced by location, which is always a first consideration.
Expect more tenant interaction, tenant complaints, feuding tenants can be a possibility too.
Lots of differences in the structure too, given similar Sq. Ft., maintenance and repairs can be higher on a per ft basis. Fire walls have different construction requirements and hopefully utilities are separate but that means more maintenance issues too.
In this area, a 6 plex is more difficult to keep full, generally there will be at least one unit vacancy, I think it has to do with finding a tenant willing to move in next to 5 others, 1 on both sides usually, in most apartments here, you have one shared wall, a breezeway on each floor, one common wall, other unit above or below. The feeling of the concentration of tenants can seem higher than larger complexes. Generally an older structure with functional obsolescence in some ways. :)
Types of loans, commercial versus residential. I like residential because I can lock in a low interest rate with 30 years. Commercial doesn't follow those rules!
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