10 unit apt or 10 single family. Which would you choose?

3 Replies

So I'm just wondering what everyone would choose if it can down to a 10 unit apartment complex or 10 individual single family homes. Each unit would have the same type comps. 3br 1 bath. What would you choose and why? I'm kind of torn because there is pros and cons to both.

Apartments are valued based on income while SFHs are valued based on comparable sales. 

That's the key difference.

E.g., if you double NOI of an apartment complex, you effectively double its value. If you double NOI of a SFH (or 10 SFHs - does not matter) the value stay the same because it is determined buy the recent sale of a house next door.

Another thing to consider is the transaction complexity. You only have one purchase, one loan, and one sale in case of an apartment complex. However, with 10 SFHs you'll have to multiply all these activities by 10.

So, I'd choose apartments. 

I agree with Nick, I think the apartment is the better way to go.  However, if you haven't done any rentals before, you might want to start with a single family or duplex for a year to learn the ropes.  After that, the opportunity for equity growth and portfolio growth is much easier to do with the apartment, not to mention easier to get financing.

That would really depend on my finances and if I plan to partner with another investor.  Having the money down for a 10 unit building in my area would be challenging.  But still possible.  Only having 1 loan for one building would make things a little easier, but at the same time a little more complicated.  But good book keeping and an CPA would take care of that.  A 10 unit in my target area would be 800k to over a million.  With value improvements and a slight adjustment to rent as needed it could be a very lucrative investment.  It's possible you could have PM on site with a unit that size.  The other nice thing is if you are going to update units for value add.  You can start renovation when a tenant moves out and you can still rent out those other 9 units.  With a house you won't be renting at all with a full blown renovation.

10 houses would probably require a lot more down payment since they won't let you do 10 FHA loans in a row. You still might be able to do a 5 % down conventional for the next if it's your primary. But then you are looking at 20+% for each house after that. At 200k per house with 20% down you are looking at 40k x 8= 320k in down payments just for those 8 and that doesn't even include any repairs they may need. With 10 houses there are 10 mortgages to pay and keep track of.

Me personally if I could I would do the apartment building. Having everything under 1 roof would be ideal. With the downside being you have a ton of money in that 1 building which may limit the amount of deals you can do the next year. Now if you don't have much for a downpayment on a 10 unit, and it just works better for you to buy a SFH every year or two there is nothing wrong with that. A lot of people like myself included have started with a SFH.