First time investor- Purchase duplex or 4plex?

20 Replies

I am looking to purchase my first investment property. For someone starting out, should I aim for a duplex or 4plex? I would "owner occupy" one unit for a bit, then move out and rent it. I know that once I find a property, i have to run the numbers to make sure it is worth it, but was just unsure about which to purchase.

Also, if anyone knows of a good REA that knows about investment properties in the Bryan/College Station area, please let me know.

Thanks.

I'm from the go big or go home camp so I'd say 4 units. To me, the benefits of multiple units outweigh the headache of having 2 extra units to manage. What's your concern with having 4 units vs. 2? 

Tony, my concern is should i start out small and simple, duplex (only having 1 tenant to start with) or go the 4plex route (and have 3 units to worry about,) but possibly be able to have more money coming in, and be more comfortable?

So should i start out taking baby steps, or should I put on my big boy britches, get off the bench, and start playing ball with the big boys, so to speak?

I think you need to check out some properties and make a decision based on the numbers.  If you find a killer deal on a duplex, don't pass that up just because a quadplex has more units.  If you have a good deal on a quadplex, I'd say jump right in!

Thanks for the info Michael.

Originally posted by @Jason P.:

Tony, my concern is should i start out small and simple, duplex (only having 1 tenant to start with) or go the 4plex route (and have 3 units to worry about,) but possibly be able to have more money coming in, and be more comfortable?

So should i start out taking baby steps, or should I put on my big boy britches, get off the bench, and start playing ball with the big boys, so to speak?

More units means reduced risk. 1 unit vacant in a quad is 25% of your rents lost (33% if you're living in it). 1 vacancy in a duplex is 50% of your rental income (100% if you're living in the other side). Managing tenants in a building you live in is much easier, in my opinion, than one you don't live in. What's to be scared of? Managing tenants is a skill. You learn it. We learn best by making mistakes, so go make some mistakes! 

If I could give anyone one tip about managing your tenants, remember that they're your customer and customer service is key. It goes a long way in building good relationships with and retaining them. Turnover is a profit killer so you want to minimize it and good customer service goes a long way towards retention. 

Troy, Awesome Explanation. I hadnt considered the reduced risk part of it. Thank You!

@Jason P. 

How will you be financing the property? FHA or Conventional? It all depends on your comfort level as well. Do you have reserves?

I will be able to go thru FHA. I spoke with my mortgage person, and I should be good as far as reserves.

@Troy Thanks for that reduced risk lay out I've never looked at it that way but it does make sense! Your right no matter what always verify your numbers. Great Advice!

I would check out the locations to see what the current tenants are paying in rent  before you buy.  I brought a multi family building in a fair  neighborhood but the  rents in that neighborhood were low.  This  will help  you ensure you  are making enough to stay a float.  Having 4 boilers , 4 water heaters or or cooling  units can be costly if one brakes down.  This is not to discourage you just to help you do your home work first.. Good Luck !  

Hi Jason -

Everything else being equal, I say go with the fourplex. I'm just starting out as well. The only prior experience I have being a landlord is renting out the house I owned for the last two years.  I sold it this month because of the market we have here in Denver and just made an offer today on a fourplex. We'll see what happens. Either way, I prefer the multi-family units over the single family homes for the reduced risk already explained. Another way to enhance your options is to buy a multifamily that is separately deeded,, giving you the flexibility to sell of one unit at a time.

Keep us posted and good luck!

Scott

A duplex will feel a lot more like living in a  house, a fourplex will feel more like living in an apartment. But really, which will make a better choice in your situation depends a lot on the housing stock in your local area and what's available. There's no sense getting set on a fourplex if there aren't many in your market, or in an area you'd be willing to live in.

I'd say just keep your eyes and mind open as you start shopping, and view and analyze a lot of properties. More doors doesn't always mean more profits.

@Jason P., I just went through this process myself not too long ago, you can read more in detail about my journey and results in my post here.

To answer your question, either only as good as the numbers. I analyzed every single 2-, 3-, and 4-plex in my area over the course of about 4 months before purchasing. Generally 4plexes will have more favorable numbers for the reasons mentioned above but it's very property specific. Also don't let list price dissuade you if you're searching the MLS. That means nothing. If something has been on the market for a while (90+ days) the seller would probably be pretty receptive to lower offers. If you don't get rejected on your first offer you probably didn't offer low enough.

Feel free to shoot me a message if you have any questions or want some help running through the analysis.

Originally posted by @Troy S.:

If I could give anyone one tip about managing your tenants, remember that they're your customer and customer service is key. It goes a long way in building good relationships with and retaining them. Turnover is a profit killer so you want to minimize it and good customer service goes a long way towards retention. 

Also this is amazing advice. Your customer service could be the difference between your best tenants moving in vs deciding to go with someone else. Fortunately there are a lot of really crappy property managers out there so a little bit of personality and openness goes a long way.

First of all figure out what you feel comfortable doing financially. Since you are starting out think that your investment will require your management and always think of your investments as a business. 

After that think that your business and how well it does will also depend on your people skills. How you select tenants and how you manage every occasion that requires your attention as the owner. 

Knowing to determine reliable and complete figures is just the first part. What can you do to assure you select the right tenants and in fact get what you need each month in the way of rental payments. Start to think and always keep on your mind that you may need to maintain your property. More units means more mechanical systems, A/C, and heaters, plumbing and electrical systems. More people under one roof makes the roof maintenance a more important issue. Think insurance wise as well. Do not stop at calculating that you will get more rent with more tenants. Everything comes with a price and a demand for your time to manage and handle. Still people do this all the time so if they are doing it then so you can. Do think what you really want and think of everything it takes to have what you want and keep it. You can also think what and how you can do things to get to the next step you envision for yourself, time wise and money wise.

I just went through this myself.

I figured I wanted to get a four plex to spread out risk of vacancy but it is much easier to find great deals on duplexes because there are a ton of duplexes in my area compared to a handful of four plexs.

It turns out that the duplex I got is making more than the four plex I was looking at.

So I would say finding the good deal is more important than choosing how many units you want.

Thank you for all of your help & comments. Since I already have a fha loan, they will not allow me to get another one, so i would have to put down 25%. So now I am looking for maybe a owner finance deal, or something along those lines. I have an ad on Craigslist, but have yet to get any nibbles on it. Any suggestions would be greatly appreciated.

Originally posted by @Jason P.:

Thank you for all of your help & comments. Since I already have a fha loan, they will not allow me to get another one, so i would have to put down 25%. So now I am looking for maybe a owner finance deal, or something along those lines. I have an ad on Craigslist, but have yet to get any nibbles on it. Any suggestions would be greatly appreciated.

Can you refi out of the FHA loan to free that slot up? This would likely be a last resort but rates are still pretty darn favorable so maybe not out of the question. Have you talked to a bunch of small local banks? They're generally more flexible than the larger institutions.