What's the difference between 2, 3 & 4 unit buildings?

Question

My wife and I will be purchasing a multi-unit building in Brooklyn in the next year, but we can't decide on how many units.  We will be living in one of the units and renting out the rest.

I understand the obvious differences: sale price, downpayment, mortgage, repair costs.  However, beyond the numbers, I don't really know what to think.

Are these types of buildings radically different from each other?

Which is a better investment?

James Northrup · Answer

Just to follow up.  We did buy a 2-family house in Cypress Hills, Brooklyn.  It's great.  Saving a ton of money and learning a lot.

The mayor is putting a couple Billion into this area in the coming years, so we'll see what happens.

Javier Diaz · Answer

Hey James,

Welcome to BP. Its always nice to see another member from the NYC area. I'm also looking to purchase my first property this year and so far everyone here has been super helpful. You've definitely come to the right place for the answers to your questions.

Your plan is a great way to start investing and living rent free!  Please keep us posted on your progress.

Cheers!

Javier Diaz

Darren Sager · Answer

Welcome to BP @James Northrup .  Great to have another member from NYC.  I would say that its personal preference on what you feel most comfortable with.  Also which is a better investment would also depend upon other factors, such as location, how much you paid for it, how much work it needed, etc.

Please join us on Tuesday in Manhattan for a Meetup.  Bigger Pocket's own Brandon Turner will be there.  You can come network, meet other BP members, and ask as many questions as you like and get an instant response.  Here's a link to the event:

BP Meetup in NYC

Anthony Gayden · Answer

The repairs will be more the more units you have, that is a fact. In my case I have 4 air conditioners, 4 stoves, 4 refrigerators, etc. I got hit by a hail storm in early July and had to replace skylights in all 4 units and broken windows. However the increased cash flow made it a lot easier to pay for the repairs, and I still had enough to pay mortgage/insurance/taxes.

James Northrup · Answer

@Anthony Gayden

The big expense, in my limited experience, is the home repairs.  So the bigger the house you get, the more expensive the repairs are.

So far, living in a two-family house has been pretty easy.  The tenants are quiet.  I see them all the time and I keep it professional and friendly.

We just didn't want to bite off more than we could chew.  It's all about how much time you have to do the job and the skills you have in this area.  You have to deal with a lot more people in a big building.

No one ever answered my questions about how they are so different... I was worried about legal/tax differences.

In conclusion, I would just buy the best building you can.  Then get the best tenants you can.

Happy to answer any more questions.

Anthony Gayden · Answer

It depends on if you or the tenant pays for water. In my 4 Plex in Phoenix, each unit has a laundry room and I provide the washer/dryer. Well the water bill is higher because of that, and I have had to repair them as well. I'm not sure if it is worth it in terms of the rents. Similar units in the area without washer/dryer are getting similar rents.

Anthony Gayden · Answer

I personally want the maximum number of units possible. My reasoning is that even if 1 or 2 units are vacant, I am still getting cash flow from the other units. In the case of my properties, they can be at 50% vacancy and I still make enough to pay mortgage/insurance/taxes.

Ryan Dossey · Answer

@James Northrup Awesome!!!!

Bill S. · Answer

If it were me, I would focus more on the nuts and bolts of the building. I would want each unit on their own utilities. I would want side by side units (less noise issues). I would want a small yard for each unit and probably a garage or some other type of storage as well. I would want washer and dryers in each of the units. All of these make for easier management and longer stays by tenants (more money in your pocket). Duplexes tend to fit this bill more frequently but in my mind the more units the better after you have the above items.

What's the difference between 2, 3 & 4 unit buildings?

Most Popular Reply