2-4 units overpriced everywhere?

25 Replies

I am a realtor in CA and I've spoken with realtors in Ohio, Florida, Texas, Tennessee and I've had no luck seeing a difference in return on investment or cash flow on properties. I can get around .62% on SF here and thought for sure after all I've heard about these markets that it would be totally possible to get between the 0.70-1.00% on SF and close to that on a duplex or even have decent cash flow on 2-4 but from what I'm seeing that is not the case anywhere. What am I missing - is it only those who have the large & expensive mailer systems in place who find anything worth buying anymore - and for that you'd need to live in the area? I have two rentals here and might as well continue to invest in CA if there is nothing better to be had elsewhere. Feeling super late to the party and frustrated. Would love feedback and advice or direction.

Hi @Kelly Pierce . I am in the Panama City/Panama City Beach area in Florida. I just got my first property under contract here, a two unit, that will pay the mortgage house-hacking using one side as a STR. If you are looking to buy a 2-4 unit, those size properties here can cash flow very well because there is a shortage of housing since hurricane Michael. STRs can be very profitable here by the beach as well. Essentially the market here is less expensive and there is opportunity since the hurricane. I'm trying to find more deals here myself now that I am about to close on the first.

You're not talking to the right people. 

I can only speak for Ohio where I invest, but you can go buy nice rent-ready MLS listed properties all day long that are over 1%. My 2-3 unit properties are in slightly riskier areas, but they range from 1.7-2.7%.

Even my very low-risk partners and clients are buying 1% minimum multifamily deals that cash flow 200-300/month. 

@Ryan Evans I would appreciate an introduction if you have someone worth speaking with. I felt you could in Ohio too and was hearing much differently. It’s hard to find realtors that know anything about working with investors when I’m so far from that area. Can we chat more?

@Kelly Pierce There are 45 MLS listed MF properties in my market that meet or exceed the 1% test...folks are not considering historical trends and get nervous to buy. We're contemplating the first performance guarantee in the industry...if your property does not perform to our underwriting standards we'll pay the shortfall...no questions asked.

100% of my clients are out-of-state....5% of them are actively buying and killing it. Everyone is basically sitting on the sidelines while the rest of us are building portfolios that will be worth millions in 15-years...

We just did an 11-yr market analysis and the sky is the limit...its the perfect time to buy...

It's a hot market nationwide.  Interest rates are low and so is inventory.  Tough to find properties worth buying.  Likely, it is a better time to be accumulating cash then trying to deploy at or near the top of a market.

@Ryan Evans hello my name is Sylvia and I’m interested in real estate investing. More so interested in house hacking a small multi family with 4 units. I live in Cincinnati, Oh and was curious to see if you could help me find someone here who’s a real estate investor that I could talk to. Thank you

@Kelly Pierce my go-to realtor got too busy so I got licensed to take over all the buyers for their team and to represent a bunch of my out of state contacts who are buying out here. I'd be happy to chat a bit and help steer you in the right direction, but it really takes a trip out here to get a feel for the market. You shouldn't buy without vising the area you decide on, and I dont' generally work with investors who haven't been to Cleveland since as @Brandon Sturgill said, only a small fraction of people actually buy. But the ones who do are repeat customers! 

@Ryan Mainwaring yep. Right now I've got a buddy from Seattle under contract on a duplex for 70k. All the mechanicals, bathrooms, and roof have been updated in the last few years. It just needs about 5k when one of the tenants turn. Here's how the numbers look. Rents are somewhat conservative. 

All in =$80k give or take with closing costs/minor rehab.

Rent - $1,300 ($650/side) 

Mortgage - $270

Tax - $140

Insurance -$65

Utilities - $150

Maintenance - $100

CapEx - $100

PM - $130

Vacancy @ 5% - $65

Net Cashflow - $280. 

You've really got to know what to look for to get these numbers. It's easy to get into a property with tons of deferred maintenance that will kill the deal over time. 

@kris L. @Kelly Pierce Not sure where you are looking....but I also live here in the Bay Area and have a couple of rentals out here. I also have a couple of SFR's and a couple of duplexes in Cleveland in "C" Neighborhoods that all get at least the 2% rule. I mention the neighborhoods because if you are looking to get 1% rule in "A" Neighborhoods ......in San Francisco thing Pacific Heights or the Marina District then you may not get that. "B" Neighborhoods....maybe....."C" Neighborhoods are the sweet spot. Be careful when you reach out to agents out there and tell them you are a California Realtor looking to invest.....they will see DOLLAR signs and may think....oooohhhhhh California Investor....Big Money. They certainly thought that with me and they seemed rather put off that I wasn't trying to buy a $250,000 Duplex in an A neighborhood as my first property. Dare I say....some of them were people I reached out to right here on BP.

All was not lost though. I had a couple of extremely insightful conversations with Michael Swan, who was a podcast guest here on BP. He is a schoolteacher in San Diego and invests in the greater Cleveland area.

I discovered that by going to Zillow....and typing in Duplexes for sale in a given zip code I would see who the LISTING agents are in those zip codes.....I saw certain agents over and over with good ratings and that's who I reached out to because they are used to working with investors. They also know who the good PMs are.

@Kelly Pierceundefined

@Kris L. Ohio is the 7th largest state in the US...its impossible to offer an informed response about appreciation. I can tell you that Columbus has seen consistent 70-90% price appreciation of MF properties in the last 10-yrs across the majority of neighborhoods....with trends continuing to skyrocket...you're properties in Central Ohio will double in value every 10-years...that same 70-90% drops to 14-15% when you move to sub-markets (rural)...

@Kelly Pierce

You could also look at building. I'm finishing up the first of a few duplexes here in Panama City Beach. I'm advertising the first units to rent at $2k/mth each and it's probably worth about 425k. It could also be run as a short-term rental, as it's close to the Navy base and there are lots of displaced households and out of town contractors around. The hurricane pushed construction back 9 months, but rents also rose during that time due to a lack of supply. These will probably be a short-term hold. I don't normally play landlord for long.

@Ryan Evans I completely agree. Once I find a promising option I fully intend to fly out to see it for myself. As an agent and investor I need to see it and the area for myself before I buy. I’d like to talk this week if possible, I’ll message you.

@Brian Garlington I hear you Brian and I’ve had the same experience. When I said no I want to buy 3-4 $150k or less SF they all start telling me oh no we don’t have anything or it’s only in the “D” areas and then none of them know how to run #’s and I’m trying to teach them and they still don’t get it. I was getting frustrated, this this discussion. I’m so glad I

put it out there because now I’m feeling better about a few markets and people at BP. As a fellow investor in CA would love to connect off here to talk if you have time.

I think that by the time a multifamily property that still qualifies for owner-occupied financing hits the MLS, it is priced outside of what an investor would want to pay for it. When the market is like it is today- I feel like deals are made...not just provided to you. Figuring out if the units are rented at market and what you could do to increase rents are keys to making these deals work for you. Also- a lot of investors ignore the list price. I prefer to work backwards like the calculator for flips on BP. What is the highest I can offer? I live near several military bases since my husband is active and I have seen the 1% often. They always need a little work but it is a seller's market and a landlords market here...specifically during the summer.

Originally posted by @Kelly Pierce :

I am a realtor in CA and I've spoken with realtors in Ohio, Florida, Texas, Tennessee and I've had no luck seeing a difference in return on investment or cash flow on properties. I can get around .62% on SF here and thought for sure after all I've heard about these markets that it would be totally possible to get between the 0.70-1.00% on SF and close to that on a duplex or even have decent cash flow on 2-4 but from what I'm seeing that is not the case anywhere. What am I missing - is it only those who have the large & expensive mailer systems in place who find anything worth buying anymore - and for that you'd need to live in the area? I have two rentals here and might as well continue to invest in CA if there is nothing better to be had elsewhere. Feeling super late to the party and frustrated. Would love feedback and advice or direction.

Financing and access to cash is very cheap and easy.  There is, and always will be, a direct correlation between asset pricing and access to capital.  The easier/cheaper it is to buy, the higher prices will be. So congrats, buying a property you see is easy.  Oh, but deals are hard to find.  Yes.  But the other market type is deals all over that you can't get financing to buy.  So what's really better? 

@Kelly Pierce not everywhere. I'm a Sacramento investor as well, who only does out of state. Market research and selection is definitely harder than ever, but I've got a few spots where I can get 10 caps and above on 2-4 unit buildings. I'll shoot you a message with some pointers in the right direction.

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