Why 2, 3, 4 plexes instead of SFRs?

Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes

I've noticed that some people like and want 2, 3 and 4 plexes, but never understood why. What do you think? I understand that there is just one roof and one exterior, but also that SFRs are much easier to sell, and can be sold one at a time. What are your perceptions or experiences about the difference between SFR tenants and apartment tenants, if any? Are you finding prices per unit on 2, 3 and 4 plexes which are significantly lower than those for similar single family houses? I've not yet found any such price difference.

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James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

12y

Can flow

I can buy a duplex and then reno it and be all in for 40- 50k and rent it out for $1,300-$1,500 all day.

Also with a mult it's almost never empty. Out Where I live anything empty for awhile gets the copper stolen.

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Aaron Helmholdt
Real Estate Investor · Jenison, MI · Member since 2013 · 28 posts · 6 votes
12y
The biggest advantage for me is that they tend to cash flow better than single family homes.
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Aaron Helmholdt
Real Estate Investor · Jenison, MI · Member since 2013 · 28 posts · 6 votes
12y
A $120,000 SFH might fetch $1200 per month in rent in my area where a $120,000 Duplex might fetch $750 each side. Also, owning MFH diminishes the variance in vacancies.
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Robert G.
Residential Real Estate Agent · Miami, FL · Member since 2013 · 195 posts · 138 votes
12y
This is very market-dependent, IMO.

The other big reason many look for a small multi-family is that they are just starting out. By moving into one of the units, they qualify as an owner-occupant and can take advantage of some of the better loan programs available. So they try to live (for free) in one unity while the other tenants cover the mortgage and expenses (hopefully).
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Sharon Tzib
Real Estate Broker · Cypress, TX · Member since 2013 · 822 posts · 468 votes
12y
Another advantage to multis is the creative finance aspect. You are much more likely to find a seller who will carry paper for you.

I agree with @Robert G. -cash flow is very market dependent on multis.
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Stephen Masek
OP
Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
12y
Aaron, are you providing real numbers based on your actual experience, or projections?

Indeed, a duplex is an excellent idea for people starting out and living in one unit, as long as they are especially careful about tenant selection and all of the laws and regulations, since they are very close to their tenant.

What prices have you-all actually paid within the past year for 2,3 and 4 unit buildings, and what rents are you receiving? My wife and I are averaging 8.5% after management, taxes, and insurance (no mortgages, owned outright) on our single family portfolio, and the newer and nicer ones have also appreciated substantially. We've not found any apartment buildings with anything close to that rate of return.
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Elizabeth S.
Real Estate Investor · Fort Wayne, IN · Member since 2013 · 168 posts · 78 votes
12y
I started with single family properties and just bought my first multi-family last year. One advantage for me is that I can rent a single family for about $650 but the duplex rents for $995 each month. The other nice feature is that if one side is vacant I'm still making money on the unit.

The flip side of that is that the duplex, even at a great price, cost twice the price of a single family so it could be argued that two sets of $650 (doubling the price of a single family) would be better than one duplex.

As long as the numbers are just double and not over, which a lot of multi-family's I see are more than double, it seems to make sense to me.
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Stephen Masek
OP
Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
12y
Elizabeth, a multiplex has just one exterior, so if all of the other numbers are the same (cost and total rent), it will generate a better return. I've just not found such an animal.

In 1996 or so, apartment buildings in the Korea Town area in Los Angeles were very cheap, so anybody who bought then was buying a cash machine. Maybe the cycle will swing back that way...
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
12y
Can flow

I can buy a duplex and then reno it and be all in for 40- 50k and rent it out for $1,300-$1,500 all day.

Also with a mult it's almost never empty. Out Where I live anything empty for awhile gets the copper stolen.

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Stephen Masek
OP
Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
12y
James, I hope you will add some more detail. Are you doing the work yourself? What quality renovation (e.g. plywood or particle board cabinets)? What purchase price and renovation coats?

What got me started on this was reading something from another member here a few days ago, where he was complaining about receiving "just" $1,450 or so rent from a $75,000 duplex.
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
12y
punches price 25 -35k rest reno. Usually paint existing cabnets. If not just get home depot cabnets. No need to go any higher quality on a 650 apartment.

I buy homes with my partner. He is a G.C. so we handle all Reno in house. Obviously if it was retail cost the reno would be more $$.

I see your from california. Rust belt RE market is a whole different world compared to the west coast.
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Mark UpdegraffBusiness Member
Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 690 votes
12y
Rent numbers on purchase prices are irreverent alone. Taxes vary greatly from area to area. I need to get ~1400 gross rent or higher monthly on a 60k acquisition to make it worthwhile. Welcome to NY!
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Andy Robison
Investor · Kansas City, MO · Member since 2013 · 465 posts · 170 votes
12y
California prices and market returns will not call anywhere into the general rules of thumb on this forum. Their prices are just so high
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Stephen Masek
OP
Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
12y
Thanks for that information.

As with many others here, I've got to buy turnkey, or close to it. I have a consulting company to run, so no time for renovations. I do know how to do it, including wiring and plumbing, and I helped write, as an active member of the task group, the ASTM E2018 standard for inspecting buildings for the condition of the buildings systems (roof, plumbing, electrical, etc.), so contractors can't feed me any baloney.
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
12y
Originally posted by @Stephen Masek:
Aaron, are you providing real numbers based on your actual experience, or projections?
Indeed, a duplex is an excellent idea for people starting out and living in one unit, as long as they are especially careful about tenant selection and all of the laws and regulations, since they are very close to their tenant.

What prices have you-all actually paid within the past year for 2,3 and 4 unit buildings, and what rents are you receiving? My wife and I are averaging 8.5% after management, taxes, and insurance (no mortgages, owned outright) on our single family portfolio, and the newer and nicer ones have also appreciated substantially. We've not found any apartment buildings with anything close to that rate of return.

Stephen, just to give you some ideas on 2, 3 and 4 units that I have purchased in the past:

1) 2 unit - The first property I purchased. List price - $65,000. Purchase price - $22,500. Rehab - $10,000. Total cost - $32,500. Monthly rent - $600/unit/month = $1,200

2) 3 unit - Asking - $55,000. Purchasing Price - $44,000. Rehab - $5,000. Total cost - $49,000. Monthly rent = $550/unit/month = $1,650

3) 3 unit - Asking $35,000. Purchase Price - $28,000. Rehab - $7,000. Total cost - $35,000. Monthly rent = $750, $575 and $575 = $1,900.

4) 4 unit - Asking $50,000. Purchase Price - $40,000. Rehab - $10,000. Total cost - $50,000. Monthly rent = $595, $545, $450 x 2 = $2,040.

For all of the above properties, tenants are responsible for all utilities except water, which I pay. The above were all purchased in 2010 and 2011.

Some recent purchases/under contract of SFHs:

1) Asking $39,000. Purchase Price - $27,786. Rehab - $2,000. Rent = $650/month. 2 bed/1 bath

2) Asking $40,000. Purchase Price - $22,786. Rehab - $10,000. Rent = $800/month. 2 bed/1 bath

3) Under Contract - Asking - $45,000. Purchase Price - $38,786. Rehab estimate = $5,000. Rent = $850/month. 3 bed/1 bath

Also, I don't do any of the work myself, everything from changing a light bulb to painting to roof is done by contractors.
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Aaron Mazzrillo
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
12y
I prefer 2, 3 & 4 units over a single family because I prefer 2, 3 & 4 rent checks over a single one every month. Dollar for dollar cost wise, I don't see any single family house in my market that will bring in the same income a multifamily will. Also, I've never had 100% vacancy on any of my multifamily properties. Can't say the same for my SFRs.

I actually know a guy who lost money on a free and clear single family house. It took him over a year to evict a very legal smart tenant. A whole year with zero rent on a free & clear house. Ouch.
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
12y
Originally posted by @Aaron Mazzrillo:
I prefer 2, 3 & 4 units over a single family because I prefer 2, 3 & 4 rent checks over a single one every month.

Reading over some posts this morning and this one made me laugh. Great point by Aaron and a witty way to put it! I only have one multi-unit, but I still prefer to buy the single-family properties in my market. That being said, I too would prefer 2,3 & 4 rent checks each month as well....maybe I should look a little deeper for multis.
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Dennis Tierney
Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
12y
In my opinion there's little comparison when you increase in size. With multi's I am an owner/investor not a property manager and spend my time in asset aquisition and money raising and leave the managment to professional managers. We currently get 170 checks (the managment co. does) and next week will go to 218/month with 6 properties. You can't get that kind of scale with single family.
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Annette Hibbler
Real Estate Consultant · Brighton, MI · Member since 2013 · 607 posts · 251 votes
12y
There are advantages to both. Although you get more returns on a multi, when the market picks up again I believe I can shift a SF a lot easier. Single family can be sold to an investor but can also be sold to a homeowner. Plus, I believe that the property will have a slightly higher market value sooner.
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Engelo RumoraBusiness Member
Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
12y
@Stephen Masek

Our experience has been of staying clear of anything that's bigger than a 3 bed , 1 bath home in an C class area.

There is too much drama with tenants and although the numbers look great on paper they most likely won't be achieved in real life.

One of my good friends is a police officer in the area and he also told me that 90% of call outs are to multifamily residences haha

Just my opinion.

Thanks
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
12y
There are pros and cons of investing in multi units and SFHs. You have to see what fits in your investment strategy and align yourself with people who have similar goals.

For example, you have $200,000 to invest. You could either purchase 4 SFHs for $50,000 each and each will rent for $800/month. Or you could invest $200,000 in a 4 unit property where each unit rents for $800/month. In both scenarios, the gross cash flow is same.

Benefits of investing in 4 unit:

1) With SFHs, you will need to replace 4 roofs. With 4 unit, you only have to replace 1 roof. The roof for SFH might be around $5,000/house for total cost of $20,000, but the roof for 4 unit will be around $8,000-$10,000, so around $2,000-$2,500/unit.

2) With SFHs, you will have 4 plumbing lines to worry about. With 4 unit, you only have 1 plumbing line. The plumbing for each SFH might cost around $3,000/house for total cost of $12,000. The plumbing for 4 unit might cost $6,000-$8,000 for per unit cost of $1,500-$2,000.

3) One siding/exterior to replace/maintain vs. 4 for SFHs

4) Taxes for 4 SFHs combined will be less than taxes for 4 unit (at least in my area)

5) One tangible asset to manage vs 4

Benefits of investing in 4 SFHs

1) Tenants responsible for all utilities

2) Tenants responsible for lawn maintenance and snow removal

3) Generally, tenants tend to stay longer in a SFH vs an apartment

4) More exit options vs 4 unit. You can sell a SFH to an investor or a homeowner; however, more likely than not, you will have to sell your 4 unit to an investor

5) Slightly better appreciation
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BJ McKellar
Property Manager · Washington, Washington D.C. · Member since 2014 · 24 posts · 5 votes
12y
I own a couple rentals in Utah, 1 is a single family, and the other is a duplex. These units are only 15 minutes apart, and I make a lot more money on my single family than I do my duplex. The duplex is about 10 years older, and has never been rehabbed. I spent a lot more on Maintenace in the duplex. 2 furnaces, 2 fridges, etc. The benefit is I've never had both units vacant at the same time, so I'm always getting some money. The duplex is 2/1, and only rents for $525. The single family is a 4/3 and rents for $1500. I personally don't like one over the other as far as looking for the next deal, it's all about the numbers.
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
12y
Originally posted by @Engelo Rumora:
@Stephen Masek

Our experience has been of staying clear of anything that's bigger than a 3 bed , 1 bath home in an C class area.

There is too much drama with tenants and although the numbers look great on paper they most likely won't be achieved in real life.

One of my good friends is a police officer in the area and he also told me that 90% of call outs are to multifamily residences haha

Just my opinion.

Thanks

If your area has 90% multifamily residences, then that number would make sense, but if your area has 10% multifamily residences, then that 90% call is high.

Each area will have pockets of good and bad areas and as long as you stay clear of those bad areas, then either multi family or SFH can be a good investment, IMO.
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Sam Leon
Investor · Fort Lauderdale, FL · Member since 2012 · 1k+ posts · 465 votes
12y
While it's locale specific...

Down here in South Florida.

Say a standard 4plex in Fort Lauderdale with 2800 SF. The gross rent you can get per unit is about $1000 so total $4000.

A SFR in the same general area with same SF, priced similarly the gross rent you can get is only about $2000 to $2200.

For the 4plex, insurance wise costs $2000 per year on general liability insurance, $1600 on flood insurance, and another $2000 on windstorm insurance. This is just for the structure nothing else. The property tax last year was $2800.

For that same SFR Home owners with no personal possession was $2650, Flood was $2000 and windstorm $3800. Property tax was $3200.

Taken into maintenance that really makes a difference in how your NOI comes out on the other end.
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Gerald K.
Real Estate Investor · Kirkland, WA · Member since 2012 · 480 posts · 116 votes
12y
Originally posted by @Sam Leon:
While it's locale specific...

Down here in South Florida.

Say a standard 4plex in Fort Lauderdale with 2800 SF. The gross rent you can get per unit is about $1000 so total $4000.

A SFR in the same general area with same SF, priced similarly the gross rent you can get is only about $2000 to $2200.

For the 4plex, insurance wise costs $2000 per year on general liability insurance, $1600 on flood insurance, and another $2000 on windstorm insurance. This is just for the structure nothing else. The property tax last year was $2800.

For that same SFR Home owners with no personal possession was $2650, Flood was $2000 and windstorm $3800. Property tax was $3200.

Taken into maintenance that really makes a difference in how your NOI comes out on the other end.

I think a better comparison would be the 4plex compared to 4 SFRs instead of compared to one large SFR the same size as the 4plex. Or the 4plex compared to as many SFRs of comparable unit size to the 4plex that you could purchase for the same dollar amount.
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Sharon Tzib
Real Estate Broker · Cypress, TX · Member since 2013 · 822 posts · 468 votes
12y
@Gerald K. I don't know - he was comparing price, s.f. and general area. I think it is a fair comparison for the discussion we're having.
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