Multi-family versus a duplex
Appraiser · Valparaiso, IN · Member since 2015 · 121 posts · 62 votes
I have been having good success with SFR rentals, but am now being offered a duplex and is will be a good deal. SFR's were 3/1 duplex is 2-2/1's. can anyone give me an idea of change in vacancy rates or tenant quality. I realize this will change with the market, but just general experiences would be good. As always I appreciate the input.
Overall, multi-family is for cash flow. SFR is for appreciation. If you have duplex, triplex, or quad, the goal is to keep occupied 100%, however, sometimes there are vacancies. If one vacant, can still cash flow small positive. If two, then will go into negative. If your SFR is vacant, then surely 100% negative. By comparison, multi-units will probably never be more than 50% vacant. You need to be proactive. Tenant quality depends on area. Better the area, better the tenants.
I tend to lean towards cashflow, and build up bank account more quickly. There is a appreciation factor but not to the extent of SFR. If you look any city, for example, Las Vegas, there is many more listings for SFR than multi-family. I can net about 700-800 per month for one of my 4plex (30 year fix 5%), and net about 600 on the other 4plex (15 year fix at 4%).
It's a chicken or egg question.
Terry
A duplex will have higher turnover and different tenant base. Generally, duplex units rent for less than a similar sized (bed/bath count) SFR, so the tenant base will be different. If you are in an area where the rents and sizing of each duplex unit is similar to the SFR's, than you will get lesser qualified tenants.
The cashflow is much better with a duplex than SFR's, no question about it, and worth the added work. You may also have additional work managing the property, since things like yards are shared and often need to be maintained by the landlord.
A duplex is a multi-family property.
In some jurisdictions there are additional requirements for owners of multi-family properties. For example, in our jurisdiction landlords must establish and pay for garbage/recycling service for multifamily properties, but can require tenants of SFRs to put that service in their own name.
Also, some multifamily properties have separate utilities (water, electric, gas/oil) and some don't. If the utilities aren't separately metered, then you'll need to pay for those utilities and figure a different way to determine each tenant's share. Then build that into your rent structure.
Multi-family properties have common areas that must be maintained. Determine how you plan to do this and factor it into your rent. Don't count on shifting that responsibility onto the tenants, as that can be unrealistic and/or difficult to manage.
Duplex properties can generate more revenue with less expense. One property tax bill, one roof/gutter/drainage system to maintain, and one insurance policy.
However, two sets of tenant files (including tenant screening documents, rental agreements, and correspondence). Two hot water heaters, two HVAC systems, two sets of locks, two mailboxes, to front doors with doorbells, two sets of porch lights, etc.
The people on one side of the building can affect the quality of life for the people on the other side. Good or bad. Be prepared to do things to enhance the ability for tenants of both sides to get along. Treat the tenants equally and fairly, don't play favorites. Be prepared to referee if necessary.
In our portfolio we have a SFR and a duplex on adjacent lots. The tenant in the house has lived there for 15 years and so has the tenant on one side of the duplex. At another multifamily property of ours we have two tenants who have rented their apartments for more than 20 years. So it's hard to draw any hard and fast conclusions about length of tenancy. In fact many of the tenants in our SFRs tend to move on to purchase their own houses, whereas many of the tenants of our multifamily properties are on fixed income and/or are elderly and intend to continue to rent.
The quality of tenant will depend on the quality of the neighborhood, the quality of the building, the management style of the landlord, the lifestyle the tenants are seeking and what they can afford.
Great thank you all. We use a property manager and I have been working with him also. It seems we will be buying our duplex. This will be are first to meet the 2% rule. So excited about that.