Investor · Saint Paul, MN · Member since 2015 · 98 posts · 64 votes
Assuming all things are equal (CoC return, etc.) is there any advantage in have four units vs two if the cash flow is the same? I like to consider time spent as so in this scenario I would spend less time on two units that four....any insight? Thanks in advanced, BP!
Rental Property Investor · Everywhere, USA · Member since 2012 · 689 posts · 525 votes
8y
Hi @Erik Sherburne - if everything else is equal, including tenant base and property value, I would go with the duplex, less people to deal with. But if seems like while you might get the same return of cash, you might be dealing with more capital invested or a different tenant base.
One advantage to having four units is you would hopefully have better occupancy rates.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
Assuming the investment, condition, and neighborhoods are the same I would prefer to go the 4 plex route from the standpoint of less vacancy with a tenant leaving. Unless these things are equal, it is hard to compare the two.
I understand how you might rather have less tenants to deal with, but having more tenants helps you in the event of vacancy. Tenants in the duplex might have to pay more as well, so it might be easier to pass along small increases in rent for a 4 plex than it would be to pass along double the increase to a tenant in a duplex.
Accountant · Brunswick, ME · Member since 2017 · 352 posts · 242 votes
8y
I'd go with the 4-plex. In addition to the comments on vacancy rates, think about the impact of a 3% per year increase in rents on four units v two. The CoC returns would diverge quickly.
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
Depends on the time you will have to commit. A duplex is easier to manage and easier to sell if you needed to unload it. That is also why I would expect a better return from a 4 plex as it isn't as liquid. Sure there are many buyers now but a duplex is a far easier sell in most markets.
In regards to the comments saying vacancy will hurt less on a 4 plex - in this situation he said holding the numbers equal. If you have the same vacancy expense you will essentially just have twice as much turnover on the 4 plex than the duplex.
From a practical standpoint this isn't a realistic question. All thing equal the smaller units will typically take less time and provide better liquidity. That is precisely why people typically get better returns on a 4 plex than a duplex.
Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
8y
Erik Sherburne Thomas S. If Cashflow and payments are equal, I would go with the duplex. Since there are 4 units, there are 4 sets of kitchens and bathrooms, as well as carpet, misc repairs. . This means twice the maintenance cost, so actually less Cashflow.
Kingston, NY · Member since 2017 · 252 posts · 138 votes
8y
Besides vacancy and coc futures being better, isn’t the point of investing to get more doors? Is is better to have a single duplex or two? If you are trying to accumulate and hold then that’s the plan. It may be easier to get rid of a duplex than a quad but that shouldn’t be the plan.
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
8y
Erik Sherburne All things equal? The quad. You’ll find that even insurance can be cheaper per unit on a quad than a duplex. But with a quad you’ll almost certainly be footing the landscaping bill. Good times.
Oh, but seldom (read: NEVER) are things equal. If the duplex rents are $800/month per unit and the quad is $400/month per unit (keeping the same purchase price) it’s a different ballgame.
These are always fun exercises but things are never equal. That’s what makes it so “fun” to look at real estate.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
Going against the grain on this, the duplex is better (all things the same). The reason for this, you've increased the options of your exit strategy. Bonus points if you could sell each half of the duplex as half vs all at once.... Now you can target first time home buyers who likely will pay more than the investors.
Now, this assumes your exit strategy is to eventually sell....
Good comments on this thread, but there is another play. The value add play. Let's say you come across a duplex that based on current rents, is $200.00 per unit below market. And a four plex same situation. Same value add, right? Not necessarily. For instance, in a duplex, it is not hard to imagine separated utilities. But in a four plex, in nearly all the owner pays water. In a duplex, I would assume you would have washer and dryer in each unit. In a four plex, a common area pay washer and dryer. By separately metering water, and having a washer and dryer tenants pay for, the extra income is tops for the four plex.
In a four plex, you also may have two added garages. It gives you another revenue play...charge $50.00 a month for the garage.
The more doors you have, the higher the exponent on the value add. Also, in the Twin Cities, the ratio of duplexes to quads is staggering. Four plexes in the metro sell at a good price. They are close enough to commercial to be marketed as such, even if comps are still a factor.
I will only look at duplexes if it is a screaming buy.
"This means twice the maintenance cost, so actually less Cashflow."
Actually the opposite is true since the majority of crippling expenses on a income property are the large capitol expenses like roof and HVAC. The interior cost of upkeep are of much lesser importance. Lipstick mostly by comparison and controllable.
Erik Sherburne All things equal? The quad. You’ll find that even insurance can be cheaper per unit on a quad than a duplex. But with a quad you’ll almost certainly be footing the landscaping bill. Good times.
Oh, but seldom (read: NEVER) are things equal. If the duplex rents are $800/month per unit and the quad is $400/month per unit (keeping the same purchase price) it’s a different ballgame.
These are always fun exercises but things are never equal. That’s what makes it so “fun” to look at real estate.
All things equal mean that either insurance is the same or the cash flow balances with another expense....
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
Everyone on here keeps talking about the 4 plex having or getting better numbers... He said the same return so in his question this is not the case. There are definitely differences in operating these but if you are keeping numbers the same, any increase or decrease will be the same across both buildings. Not reality but that is the question he asked.
If you can find a duplex that cash flows the same as a 4 plex, you will generally spend less time managing the duplex and you will have better liquidity. Keeping the same numbers across both investments will make the 4 plex more time consuming and you will generally have less liquidity.
I would personally rather have a 4 plex than a duplex but not if they generate the same return. This is a hypothetical questions which is not reality in most markets. It would be rare to find a duplex in a similar area that had the same return as a 4 plex.
Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
8y
Thomas S. So if I have 4 units, the building would be bigger. That means bigger roof to be repaired. Also a bigger water heater distribution and HVAC system. How would it be cheaper if it’s bigger and would cost more to repair/replace from my point of view
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
8y
Robert Herrera Not speaking for Thomas S. but keep extrapolating to see the benefits. Do you think there’s the same sq ft of roof per unit for my 27-Pelz as there is with a duplex or a quad? No. Do you think there’s as much exterior brick/siding/etc. on that 27-unit? No. Do you think I get a discount on pest control (per unit) for that 27-unit? Yes. Do you think landscaping per unit is the same for a quad vs. 20+ units? No.
You can go down the same road with the gutters, number of windows, etc. So there is a material difference if you take a long-term view. It’s just that most people here look at small windows of time and don’t say:
“I’ll have to replace the windows in 10 years. How many windows per unit are there? What’s the cost per unit? Can I get a 5% discount if I’m buying more windows?” And then look at that (inevitable) cost per-unit per-month leading up to that expense in 10 years.
But, like I said before, nothing is every apples-to-apples. It’s either apples-to-oranges or apples-to-Volkswagens 🤷🏻♂️
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
Plus it's easier to spread costs over the doors, statistically everything breaking once is not likely to occur vs if you have fewer doors your chances increase. If you have 27 doors remodeling one isn't going to have the same impact as if you have a duplex and have to remodel one side (which would be half your rents).
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
duplex will have Less tenants, less turn over, less evictions, less for maintenance and capital improvements.
4 units could have better appreciation. If gross rents on the 4 unit is $4000 and duplex is $3000, then a 3% yearly increase in rents will ultimately yield a better return.
Investor · Saint Paul, MN · Member since 2015 · 98 posts · 64 votes
8y
As always, the BP community has great feedback and, interestingly, varied feedback which is very thought provoking, thank you. I honestly didn't expect to get this many replies. I recognize that my proposed scenario isn't "real" per se, but I'm at a stage where I want to keep this passive as I have a job I enjoy, a young family, write some music for passive income royalties. I see REI as investment diversification but time is a luxury I don't have. For me, it's not a matter of lazy, I work plenty hard, it's just more that I value using my time on multiple things and not completely focused on REI.
That being said, what I was thinking of is if the CoC was the same then I'm essentially getting higher rents per door on the duplex and thus a greater risk if the rental market declines of losing that return. For generic numbers sake (not based on anything real),
$1600/month cost for both
I net $400 per door off of $1200/month rent on the duplex or $800 per month
$200 per door on the fourplex off $600/month rent still $800 per month
Then if (when) the rental market declines that $1200 is likely to drop further than the $600/month leaving me with better cash flow on the fourplex, right?
Los Angeles, CA · Member since 2017 · 33 posts · 11 votes
8y
While the cash flow might be the same NOW, I think the four-plex can have stronger appreciation long-term and can yield a stronger cash-flow down the line.
Sure, you'll have more moving parts with a four-plex since you're managing twice the tenants, but @Ryan Murdock raises a great point about the potential hit you can take with vacancy in a duplex.
Coraopolis, PA · Member since 2018 · 36 posts · 27 votes
8y
In my experience all things are never equal. I would challenge you to dig deeper and see other potential differences that may impact your decision. for example
Age of property? is one going to require more repairs because its 100 years old vs 20
Deferred maint? How good did the last owner maintain the property. one furnace is older than the other. One roof is older than the other.
Appreciation? are the neighborhoods developing at faster rates
Purchase price discount? if you are buying one at a 10% discount and the other at 25%, that is a difference of 15% that you made as soon as you bought it. That is a lot of "pre-paid" income
How much of your own capital? can you refinance your capital out of one sooner
Which one would you like to live in more? are the units up/down or side by side. Does the duplex have a yard to be shared by two but the fourplex has no yard or is shared by four. impact on vacancy rate (vacancy is huge eater of income! especially with property management)
What is parking like? Does the duplex have a driveway and the fourplex is offstreet parking that they need to fight for?
Are the current rents at max value?
And the last question (most important): If they are both good deals, then why not buy both? Find a way to buy both!
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
8y
An important point to consider is demand. To cash flow the same in the same area they would probably be different size units. What is the demand for in your area? 2 bedrooms? 4 bedrooms? Are you looking at 4 one bedrooms vs a duplex with 3/2s. I would rather have a high demand property for the area.
Real Estate Entrepreneur / Investor · Chicago, IL · Member since 2016 · 688 posts · 367 votes
8y
There are some interesting points here.....one thing people forgot to mention is its almost never going be equal because if you are looking at a 2 unit and a 4 unit rehabbed and playing close to retail for both.......looking down the road Im sure the rehab cost of the 4 unit would be outrageous depending on the neighbourhood. 4 bathrooms and 4 kitchens.......Therefore it would be harder to sell. From my experience 2 units perform a little bit better on Cash on Cash return percentage. It depends on the area, I know....but also depending where these two MFHs are.....you also have to add in the garbage and water bill to the maintenance as well......here in Chicago water bills can become extremely expensive and many landlords "forget" to add those cost into their budget of monthly expenses.
Rental Property Investor · Gulf Breeze, FL · Member since 2014 · 1k+ posts · 733 votes
8y
@Erik Sherburne - depends on your goals. When you say cash flow is the same, is that per unit or per property? If per unit then definitely the 4 plex. If per properties, then the duplex is the better deal as you’re reviewing a 50% better cash flow.
Also, as @Ryan Murdock points out, your % change is different and that can work both ways. Expenses (like vacancy) is one but income is another. Bumping rent up $25/unit will yield either $50/month or $100/month in additional income
If you’re worried about time, find a property mgr and that will certainly remediate that concern.
Pembroke Pines, FL · Member since 2018 · 30 posts · 7 votes
8y
4 Plex = more $ for capex, maint, etc. and better spread against vacancy
Duplex = easier to sell quickly at desired price to investors that aren’t strictly number crunchers and house hackers (more appeal to residential buyers)