First property single family or multi???

Question

Looking to get my first rental by end of summer.  I am torn between single family of multi family.  I can get a better ARV on single family and refinance.  But better cash flow on a multi.  I have the BP book on house hacking as my next read.

Long term goal is to be 25% single family, 75% multi (Final goal is to own a couple small apartment buildings).  if that helps with your response.

Evan Polaski · Answer

@Kevin Paglia, again, my personal opinion would be to do just that.  In fact, with hindsight, I wish I never bought a Single Family for my first house.  I wish I had bought a 4 family, and grown from there. If I didn't have kids, and at times even with them, I still try to convince my wife to sell all of our properties and we can buy something smaller to invest in more larger scale properties.

I am by no means upset that I bought single families. Overwhelmingly they have been great. At the time I was looking at simply a single unit cashflow basis, and not thinking about scalability.

Greg Dickerson · Answer

It's really up to you and depends on your knowledge, experience and financial resources. That being said Multifamily is by far the better investment in terms of economies of scale, cashflow and growth potential. You need to educate yourself on the business and the markets but once you understand the fundamentals you will see why its a much better way to go for growth.

Kevin Paglia · Answer

Looks like it is going to be MF for me.  My parents need to downsize due to health.  So my current thought is to get a quadplex and have them live in one of the units. Will be difficult to convince my independent minded dad to accept this help tho

Pope Lake · Answer

@Kevin Paglia I agree with @Greg Dickerson and @Evan Polaski that multifamily is the best way to go - especially if your goal is replacing your income. To illustrate the money making potential of MF, an example I like to think about is, if you own 10 units and you increase rents by just $20, you get $200 extra income / month, which equals $2400 / year. If you divide this by a 8% cap rate, you've increased your property value by $30k! (Value = net operating income / cap rate). This type of forced appreciation is much harder to achieve with single family.

That being said, multifamily investing is a lot more complicated than single family investing and may be more difficult just starting out. If you do go through with buying a single family home, I would go the BRRRR route as you mentioned. In my view, the BRRRR is the best way to get forced appreciation on a single family home, while leaving much less capital in the deal, as compared to a traditional buy and hold.

Kevin Paglia · Answer

@Evan Polaski  If I do the multi family, I will be doing some house hacking, like making it my residence (have to convince the wife to give up the house first).  Doing that, I WILL have enough for a quad-plex in June, AND enough for a BRRRR in october.  It fits well into my plans and, I guess in the long run I am looking at replacing cash flow. We'll have capitol coming in enough to get momentum going.

P.S.  If we do move into the multiplex, then the house we currently have a mortgage on would actually become our very first rental.  3bed, 2 bath in a mid B neighborhood in highly sought after school district.  Refinanced to a 30year from our current 15 we'd be able to rent it out easy.

Evan Polaski · Answer

@Kevin Paglia I agree with @Erik Whiting if you are talking about larger scale assets.  When I read your post, I was thinking like a 4 family.  If I could redo things, it would be focusing more on 4+ units from the get go.  I too started with SFRs, which have done well, but if I knew now what I knew then, I would do it differently.

As for appreciation, I would actually argue that you can better force appreciation in investment properties than in single families.  Yes cap rates fluctuate, but if you can find multifamily properties that are rented below market, and do the work needed to get them to market (typically renovations), that increased cash flow will continue to be valuable to investors.

Kevin Paglia · Answer

@Erik Whiting  That's my thoughts on a SFh as well.  And I am a people person.  been dealing with people at work for 30 years.  love the customer service industry, which is how i think about approaching the landlord aspects.  That and hire a property manager to minimize my mistakes.

@David Abbate:  Glodal economy is bad, going to get worse.  But if i live my life waiting for the right time, then I'll never get it done.  Heard it said once the right time to do something is right now.  Humorous, in a sad way, last time I bought a house was right at the start of the 2008 market crash.  If we had waited 3 months we would have saved a LOT of money.  I currently spend a lot of time every day looking at homes and multi families in my area watching trends in price in what areas.

Erik W. · Answer

I'd start with a SFH, but then again I have confirmation bias because that's how I started and it has worked out well.

The reasons are these:

1) Smaller deals are less costly if you screw up than big deals.  Most of us, if pressed, could scrape together enough funds from family, friends, retirement accounts, and shaking the couch cushions to finish up a job that goes $10K over budget.  MF can easily go $100K-$200K over budget, particularly when you're new and don't know what you don't know yet.  Or when something crazy and unpredictable happens, like....mmmm, I dunno, a worldwide pandemic shows up 1 month after closing?  It could happen.... ;)

2) It's a good trial run to see if you like being a land lord.  Land lording is a people business.  If you get into working with tenants and realize you hate it, at lease you only have one person to deal with vs. 20+.

3) You can learn the business and the law at a steady pace vs. drinking from a fire hose.  Stuff will come up that you won't think of, and it's a lot easier to do research and make decisions one issue at at time vs. dozens or hundreds.

Now there are some (ahem, Grant Cardone) who say "go big or go home" and insist your first deal must be a $5 million apartment complex.  Fine, whatever.  He is very successful so I won't argue with him.  It's worth mentioning he already had millions of $$$ and business success under his belt.  I had neither, so I started small and have worked my way up.

First property single family or multi???

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