Two options for my first rental

12 Replies

So I really want to get my first property closed on and start this endeavor and I have narrowed things down and have two very different properties in mind.  

The first is a three bedroom single family that has been very nicely updated, is in a good part of town and should rent very easily.  The problem is that it's 170K and with the other expenses the monthly cash flow is only 300 dollars a month.  I can get it for only 10% down and an interest rate of 4.5 to 5.5.

The second is a small apartment building that has 4 one bedroom apartments that go for 1k a month each.  The cash flow then is around 2K a month.  The building is well located (right next to the state capitol complex) but isn't a "nice" area like the one family, I'd say a B neighborhood.  The asking price is 239,000 but since it's a multiplex I need to put down 25% and get a 5.5% interest rate.  This expenditure will eat up almost all my liquid cash but I really like the cash flow as this will allow me to move on to my next property much faster.  

What do you think?

Think about what your holding costs will be for each and how long it may take to get rented out. Fall is usually a slower time for the leasing markets, so you may keep that in mind. Are any of the units in the 4 unit building currently occupied? 

The 4 unit cash flow is great. But if it ends up taking most of your liquid cash, it may be really hard to hold for a few months while also budgeting for unexpected repairs if it's not fully occupied. Just something to think about. With the 4 unit building you will have 4 of everything that could break and need replacing at any given time. So you will definitely want to have plenty of reserves to cover it.

I would recommend to start slow with the single family home and go from there. Do not put all your eggs in the same basket as you are just starting. Although the cash flow of the multi unit is very attractive as mentioned above you have to take into account your capex (how old is the building?). If this deal eats all your liquid cash from the get go you are exposing yourself to unnecessary risks.

Keep us posted.

You should be able to inspect the 4 unit and get an assesment of what repairs might be needed in the near future. How fast did you /can you Build up your cash reserve? If you can revuild it quickly I would prefer the 4 unit. The more conservative approach is the SFH.

One factor is, Which is the better deal? Are both of these at what you would consider a fair market price or is  one on the high or low side?

I haven't put in an offer but I'd say both are basically market value.  The one family is very nice though, the difference between it and homes in the 140-150 range is very evident.  I just don't like the cash flow aspect.  Is 300 a month worth the effort?  

@Matthew R Curcio not sure which market you're in but usually if you need to flip a property then it's easier to do with a single family. Again not sure which market you're in. Also not sure how your B class areas look but generally B areas are desirable with A being the high end side and B just a step below. Also just as a thought, are you able to do a cash out refi on either? 

Hi Matt,

If I were you, I would definitely go for the multi-family. Unless you can get a single family for far less below market, there is no way to make money. I am not sure if you are factoring everything you should into your cash flow calculation when you say you would make $300/mo, but once you take vacancy, maintenance/repairs, and CapEx into account, it is highly unlikely that you will make much at all on a single family in our area.

I know of at least one bank in the Capital Region that may finance a non-owner occupied multi-family with less than 20% down.  It is deal and buyer specific, but they will do it from time to time.  PM me and I will send you the info on who to speak with.  


@Vitaliy Volpov I’m interested, I sent you a connection request. Also, the more I think about it the more the multi makes sense. The purchase at 25% and closing costs uses up my disposable funds but I don’t need to tap into any retirement accounts, I also have enough to cover anything major if it occurs prior to rebuilding my investment funds (although hopefully it won’t come to that)