2 units multi-family more profitable than a 3 units?

Question

I'm looking into an investment property (currently own a condo I'm renting out), I wanted something that I can live in while renting the other unit(s) and kind of have tenants pay my mortgage and rent. I'm realizing that's harder with a 2 unit multi-family than a 3 units. Any advice? I'm looking into the Malden/Wakefield area.

Bjorn Ahlblad · Answer

@Andrea Fajardo welcome to BP! Generally more doors is more profitable, and helps absorb vacancies and other expenses. Make sure of your underwriting skills and don't skip steps in your buying process. All the best!

Justin Hammerle · Answer

@Andrea Fajardo - generally speaking, the more units the better you can scale expenses including acquisition costs.

Kyle Spearin · Answer

@Andrea Fajardo you've gotten a ton of great insight already, so I'm going to provide a slightly different perspective on your question.The more units, the better is definitely true for cash flow. My question for you, though, is what's your end goal? If you wanted to resell, the single family with an in-law suite would probably appreciate better and be easier to sell down the road as the buyer pool is bigger (homeowners, not just investors). Start with the end in mind :)

Andrea Fajardo · Answer

Thanks everyone for the feedback! This verified what I was suspecting. In my case the pre-approval had been done for a duplex. I'm now waiting patiently for a good opportunity that doesn't need lots of renovation. Also looking in ways of legally doing the house hacking :)

Ryan Legat · Answer

As was stated earlier the more units the higher the gross income will typically be (but not always) and having an extra unit will provide a cushion in case on unit is vacant. The possibility of both being vacant is a lot less likely, so at least some cash will come in as opposed to none.

Buy it really depends on the initial deal, you make money you buy, and I wouldn't rule out a duplex if you find a slamming deal. Typically for house hacks if you find a scenario where you can leverage the rent to pay all debt service, utilities, and most maintenance costs you are in a good spot.

And one unit being vacant might not be too big a deal if you live in a high demand area for apartments. In that case the vacancy time might only depend on how picky you want to be.

Chris Merchant · Answer

That would probably depend on the lender themselves, I am sure each are different.  Me personally I would rather have the 3 unit than the 2 unit or the SFH and the 2 unit over the SFH, as @Bjorn Ahlblad said the more doors typically means more income potential (not cash flow but income) and helps absorb vacancies.  It is also easier to spread the mortgage payment out over 2 units versus just 1 if you don't want to have to pay anything out of pocket for the mortgage (which I do not blame you).

Biggest thing no matter what avenue you take be sure the numbers work for the strategy you employ!  I would try and get in touch with a RE agent in the area and see what they feel is working in that market right now, @David Constant may be able to help you, he is from CT, I do not know if he has any contacts in your area or knows of anyone that would.

2 units multi-family more profitable than a 3 units?

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