Multi family v.s single family

7 Replies

When starting out in real estate is it better to go for single family or big multi family especially if you have a lot of money saved up

Dovi,

That depends on a lot of different factors like are you going to start with a primary home first.  Sometimes a good option is to buy your first home/primary as a duplex for example so when you flip it to a rental it's already offering (2) renters.  Same thing with a 3 or 4 unit which can be purchased as a primary as part of the hacking process.  If not you should evaluate the amount of money you have for DP, renovations, carrying costs, liquid reserves etc.

Remember anything over 4 units 5+ is going to require 20-25% down with cash/liquid reserves as an extra requirement for underwriting approval. It may make sense to start off with multiple SFR's or a 2-4 unit to break the ice and build up your portfolio and comfort level. Once you build up your smaller portfolio and have additional income from your new schedule C income from rentals you then turn around and jump to the higher 5+ units now that you have landlord experience which is also required by majority of lenders.

Originally posted by @Dovi Zagelbaum :

When starting out in real estate is it better to go for single family or big multi family especially if you have a lot of money saved up

 What’s your definition of a lot of money saved up?

Dovi,

I understand in that case I still would advise on a MF home keep in mind a 3-4 unit is going to require a minimum of 25% down so a $400,000.00 MF home would be $100K down. So I would be within that bracket and don't forget about closing costs and liquid reserves above that amount for the approval typically 3-6 months of PITI.

Get the best property you can afford. Make sure you run the numbers. Remember class A & B neighborhoods are more expensive. Part of the classification is the average income in the area. Our SFHs in class A & B neighborhoods have done well despite the pandemic. My wife and I have never had trouble collecting rent. 

After 3 years, we recently sold a small multifamily in a class C community. Those tenants found it challenging to pay rent on time before COVID. The pandemic only made things worse. Inability to pay is just one issue. Then there are those who choose not to pay and tear up the place & stuff baby wipes down the plumbing before they leave. This kind of damage can destroy the finances of a newbie. We never understood the nightmare landlord stories we heard from former investors until we purchased a class C property. Best of luck.

Rob