how is multi different from SF

Question

I have 5 SF properties but now am looking to buy a multi (might not be 5 units-hope this is still the right place to post.)  With the SF's I feel comfortable with my criteria I use to decide to buy or not and I feel I have a pretty good idea on what to expect as expenses etc... But last night I started looking at Multi and I suddenly felt overwhelmed!!

Please teach me what is different between the two so I can be prepared.  What expenses do I need to consider?  What criteria do you use when analysing a deal (is it pretty similar to a SF?) Is it still possible to get do a conventional loan at %20 down?

ETc.... all ideas and thoughts welcome. Thank you!!!

David Wolber · Answer

hi @Heather Uhlir

Alright, breeeeatheeee... :) So i started the opposite and owned multis before SFH for investments but now own both.  The thing about larger mutlis is you will have a common or "house" electric meter which you won't have (usually) with a SFH.  Water / taxes / insurance / basically everything is that many times more expensive.  So don't panic when you see utilities costs with a lot of numbers on them.  You now will own that many more toilets, appliances ect...but i'm sure you get that.  There is also that many more ways to SAVE money as well when you start looking at putting in efficient toilets and low flow shower heads ect...

as far as financing, 4 or less units is considered residential so it'll have all the same options as you would as a SFH.  Even owner occupied house hacking. Unless you are buying in an LLC.  Once you get to 5 and over than it's a commercial deal and everything is more expensive and down payments are min 20%.  But the short answer to your questions is yes, yes you can still get a conventional loan with 20% down if you buy it in your name.

When it comes to calculations it's all a percentage of rental income right?  So since your rental income is higher, so will your reserves and expected expenses.  What ever you use for a CapEx percentage for a SFH, should pretty well hold true for a multi.  With some variations such as a SFH may have the same size roof as a up/down two family.

Sorry, i'm really just rambling.... haha

I hope that helped a little.  Let me know if you have any other specific questions, I will be happy to answer.

-Dave

David Wolber · Answer

I'm not sure if it's a rule but we always reserve 3-10% of monthly income for both maintenance and Capex. This is not including lawn and snow removal. We do that based on the individual property. Some might be a bit rough and need more saved as we are expecting more things to break or need a new roof sooner or others we will drop them super low because we might have bought it and did a total gut reno and don't expect a lot of maintenance issues in the near future.

Heather U. · Answer

Thank you!! So when setting aside the amount for the repairs etc...what rule do people follow?

Rick Martin · Answer

@Heather Uhlir oh boy. I could write a book. In fact that would be a good place to start. Something like "the ABC's of Real Estate," or "Multi-Family Millions." Lots of great podcasts out there as well.

A couple of great advantages of MF are: 1) the value is based on the NOI (net operating income) that you create, as opposed to comps. 2) The diversification of risk.

how is multi different from SF

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