Which do you prefer? SFH, Duplex, Apt, etc..

Buying & Selling Real Estate Discussion 22 Replies

Just curious for those that are doing rentals, which is your preference? For me I think for the long term I'd prefer SFH just because I think they would be easier to sell if need be.

What about you?

Any property that will cash flow, generate residual income; however, my preference is multifamily (apartments).

In general, I like multifamily as well. But in a relatively expensive market like the Denver Metro, sometimes duplexes are the best buy for cash flow.

The reason is that there aren't many multifamily REO's around, but there are lots of REO SFOs and duplexes.

They'll all work for you. However, your sfrs are always the best re-sale. It is a simple economics supply and demand lesson. Apts are never purchased by owner occupants, so you lose that demand. Duplexes are normally not bought by owner occs, so they also lose that demand.
Sfrs are bought by speculators, investors, owner occupants. They have more demand, hence more saleability, imo. They are also easier to buy. Better loans, and less money required, so more buyers. Rich.

It's all about the money and as long as they cash flow, I don't really care.

Mike

I would have to say multi-family homes. I am currently maxed out for being able to apply for conventional loans. Currently all of the lenders/banks that I have spoken with do not allow over 4 mortgages to be on your credit when you apply for a loan to purchase an additional property. When I bought my first property you could have up to 10 loans. If I had known that I would only be able to purchase 4 properties using loans, I would have prefered to purchase 4 quads. That way I would have 4 loans but the ability to have 16 cashflowing tenants.

The other side to that is at the time when I started buying prices were a lot higher so I couldnt afford the quadraplex units that I was finding. Now I am finding duplexes for $30k, $40k, and $50k that will rent for $750 on each side....great cashflow! The problem now is that I cant obtain conventional loans, hard money is hard to come by, and I'm having problems finding investors to partner with on buy/hold deals.

I would normally prefer SFH. But when considering the economic downturn, which may be prolonged, my thoughts are moving toward multi family homes such as duplex's, or SFH's with an garage apt for kids or parents.

This will become more common as we return to a more "extended family unit" society to make it through the hard times ahead. Where the kids move away only to return due to economic troubles. Or moving in the parents who lost their home due to troubles.

If you add kids and parents then Triplex's may also work almost as well as SFH's.

I like your thoughts on extended families. Why stop at the triplex? You might as well buy multis to take care of the larger extended families!
Like others, I think good deals come in all sizes, just like good people... Rich.

I was speaking of the near future possibilities for newer investors, but you are absolutely correct about the long term outlook IMO.

But doing the duplex and triplex will also encourage them to do larger deals such as a complete apartment complex of say 200 units!

Interesting observation, Jawsette. I have an upstairs/downstairs 2-unit apartment totalling 5 bedrooms that has rented to extended families for the last couple of years.

Personally, I like SFHs because of the larger market of potential buyers.

Also, I'm a little wary that multis may become a target for increased taxes. It's a lot more politically palatable to hit on 'rich apartment landlords' versus the average SFH-owner.

I prefer single family primarily because of the liquididty. RE already has poor liquidity and market for multi-units is much smaller then SFR.

I also believe that I can attract a higher quality tenant into a SFR, so I generally have a lower damage rate.

It is a simple matter of economics and time. If you want the liquidity SFRs are probably the best bet, but will take more work and more of you time on a per building basis in general. That is why sucessful investors eventually move at least part of their money into larger and larger buildings.

For all those who are quoting supply and demand in saying that SFR's are better investments. Consider that there are far fewer apartments/ commercial buildings than SFR -thus less supply.

SFR's have a much lower barrier of entry, so you have to protect against more competitors edging into your "turf"

Liquidity is an issue, but this is not a liquid business no matter the property type

Originally posted by Kel S:
Just curious for those that are doing rentals, which is your preference? For me I think for the long term I'd prefer SFH just because I think they would be easier to sell if need be.

What about you?

I will choose income property every day. The more units the better. This spreads your damage across many renters. If one, two or twenty do not pay, it might reduce your monthly income, but the loan always gets paid. Income property is also valued on CAP rates, not the same as a single family that is valued tot he rest of the properties in the neighborhood. So to raise the value, I need only to increase the income or reduce the expenses. Once the CAP is applied, my increase is expectantly. The easy calculation is on a 10 CAP property, for every single dollar I increase my net operating income, the property goes up by ten dollars.
If you buy a property and say eliminate $35,000 in yearly expenses, you have increased the value by $350,000. Or, you have increased your cash flow by $35,000 yearly... either way... income property with lots of tenants is my clear choice...

Jim Johnson, MHP Holdings, LLC | http://www.mobilehomeparkbuyers.com

Ryan,

I must respond to you situation regarding being tapped out in the 'conventional" world of financing.

If you haven't already, I would recommend that you learn to deal with commerical loan officers at small local banks... once you create a relationship with these small banks you will be able to unlock funds and accelerate your business.

I have just started multi-part article on how to create these relationships with local banks. It has been posted in the Money & Finance section.

Hope this helps?

Pete

Thanks folks, that was a great discussion and i really appreciate the different perspectives. We are running into an issue with rent control where once we have 4 rental units (not buildings) we have to put everything into rent control.

I would assume that if one was rehabbing and flipping that SFR might yield a higher profit than selling a pure investment unit?

you guys keep answering a lot of questions I have been thinking about from my experiences and working through with my 27 yo son who seldom takes my advice at first glance :O.

jeffrey

For phase 1 I like SFR's. I wouldn't have bought this multi had I been as good at buying SFRs then.

I like multi-family as I only have to go to a couple of locations and I've checked on my holdings. Also, in this economy, we're doing more of our own work to maximize our cash flow and with apartment buildings we drive to one location, not all over creation. It also seems to be easier to get property managers for multi-family. Lastly, our SFRs pay almost the same rent as each apartment does but the apartments cost less per door to acquire and are less maintenance.
As far as resale goes, I would much rather deal with an investor when reselling than deal with end-users who don't know the numbers or their financing or can't make a decision, etc. When investors are involved, the deal is much more likely to go through.

If you're a serious real estate investor and you plan on growing your property portfolio, I would recommend buying all of them.

By having positions in SFH's and multi's, you diversify your risks and also expand and develop your business knowledge and experience.

Make sure you buy right and always buy more.

It seems to me that the biggest problem with Multi family is selling. Although I can think of other as well. MFRs belong to a niche market. Only investors are interested in those, unless you convert your apartment building to condos (State and local laws and regulations apply).
Other problem could relate to common ground and common problem. If my SFR renter call me (Or my PM) and complains about roaches, I usually reply by saying that swear to God, I didn't put the roaches there... I also insist that the house was turned in to the renter free and clear of any infestation and if the renter keep the place clean, it will mitigate the problem. When you own a MFR, a problem like this, become a common issue where one renter may keep the place clean when another one doesn't, so the problem becomes yours.

Originally posted by Kel S:
Just curious for those that are doing rentals, which is your preference? For me I think for the long term I'd prefer SFH just because I think they would be easier to sell if need be.

What about you?


I think turn key deals sell the best

Not tying to hijack, but I think more people need to consider mobile homes as well. I know that people fall in love with equity built up from stick homes, but from a purely cash flow perspective, nothing beats mobile homes. You can rent, but I prefer to sell on notes and collect interest.

It depends on what your long-term strategy is.

If you are looking to simply rent to cover your costs, profit reasonably, and hold them until the properties are paid off, so you can sell them and collect most profit there, definitely SFH are the best way to go. They are much faster and easier to sell, plus the only people who buy apartments or multi-family units are INVESTORS, so they all want a discount. Even if you buy them cheap, you will most likely have to sell them cheap.

If you are looking to hold for life (only care about cashflow), even after they are paid off, I would definitely go with apartments. You can get a discounted rate with property managers since they are going off of quantity and proximity, and its less of a headache to keep up with 5-10 apartment buildings than 50-100 homes.

Hope that helps!
Blake Templeton