Why 2, 3, 4 plexes instead of SFRs?
Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
Why 2, 3, 4 plexes instead of SFRs?
Most Popular Reply
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
12yCan 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.
40 Replies
- Real Estate Investor · Kirkland, WA · Member since 2012 · 480 posts · 116 votes12y
Originally posted by @Sharon Tzib:
@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.True. I would think as far as cashflow is concerned, a 3000 sqft duplex (two 1500 sqft units) would be better than a 3000 sqft SFR, but maybe not as good compared to two 1500 sqft SFRs. I think tenant's would pay more for the separation and extra privacy of renting their own place with a private yard, although it probably depends on the person and their needs/wants. Some don't like having a yard to take care of or being totally alone.
- Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes12y
@Stephen Masek - I've posted about this before and many people either didn't understand what I was trying to say, or they didn't believe me. But multies can actually be more risky in a sense. If you make a mistake in buying a multi, it can be harder to sell and get out of. That's because the only buyers are other investors. And it you're truthful with your numbers, and honest enough to not dump a loser on a newbie, you can really take a hit to get rid of it. On the other hand, most SFRs can be sold to an o-o who won't care about your numbers.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes12y
Originally posted by @Sharad M.:
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.
You will definitely get more police visits with a multi unit. The tenants always fight with each other. It is an annoyance but I still prefer multi's to SFR
- Investor · Fort Lauderdale, FL · Member since 2012 · 1k+ posts · 465 votes12y
Originally posted by @Gerald K.:
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.
Gerald, I think numbers can be sliced and diced many ways.
In this case I was using two properties similarly priced as a starting point.
Yes perhaps four 2/1 SFR vs a 4plex of 2/1s would be better. But down here there aren't that many 2/1 SFR to be found, and if there are, they will not work be in the same general area where you could make apple apple comparisons.
A 4plex of 2/1s in rent ready condition can't be had for less than 300K. But there is no way to get a SFR of 2/1 at 75K - a double wide with a leaking roof, may be.
But the fundamental point is even if the SFR is scaled down, the insurance won't scale down proportionally, and as you can see, we get eaten up by insurance with four SFRs.
- Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes12y
Thanks for all of the replies!
One of the best ways to learn more about how tenants in apartments behave is to talk with other owners and mangers who you contact through membership in apartment associations. Pit bull "comfort pets" and "need" to smoke "medical" pot beside a unit with a child with asthma are just two of the newest treads. Lawyers who specialize in apartments are also members of apartment associations, and provide plenty of advice on such issues at the meetings and through columns in apartment industry magazines.
It is not just crime you have to worry about. It is the tenants' attitudes and morals. Not to get my own thread off topic, but a manager of an apartment complex in West Hollywood recently told me that a kitchen sink backed up in one of the units. He had a plumber there that day, and even a maid crew to clean the kitchen. The tenant sued, claiming exposure to "toxins" and the insurance company settled for $25,000 (her lawyer got $5,000 and she got $20,000), and the owner's insurance went up because of it. There is currently an epidemic of such stuff.
- 12yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @James Wise:
Originally posted by @Sharad M.:
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.
You will definitely get more police visits with a multi unit. The tenants always fight with each other. It is an annoyance but I still prefer multi's to SFR
lol
They sure do.
Any multifamily in a C class area here in Kansas City is a revolving door. The numbers look great on paper but almost impossible to hit in real life. It gets sold based on the numbers (not many comparable sales to compare to and if there is they are all over the place) to an unsuspecting out of state or country buyer.
The buyer holds for 6 months and slowly sees the headache and how un-manageable it is. Sells at a dirt cheap price to a local developer and then the same cycle begins all over again.
I have even heard of investors running numbers with hiring a full time security guard looking after the complex haha
Good luck trying to make the numbers work then lol
Just my opinion.
Thanks for reading.
- Real Estate Investor · Lincoln, NE · Member since 2013 · 584 posts · 353 votes12y
It's been said already, but cash flow is the main reason why. Our 14 plex cost us $335k and produces over $6000/mo. in rents, plus we resell the utilities to the tenants and make money on that as well as the coin op laundry in the basement. I might be able to buy 3 SFR's for that investment and MAYBE get half as much in monthly rents.
You also get risk mitigation with multi's. One vacant unit for this building is 7% vacancy. One vacant unit on the above 3 SFR example is 33% vacancy. Big difference.
The main draw back with multi's is that they won't appreciate as much and the pool of potential buyers is smaller. Really only other investors will buy a multi and the value is directly related to the income it produces. SFR's can be sold to homeowners and the value is a function of the overall market for primary residences.
- Kansas City, MO · Member since 2008 · 143 posts · 41 votes12y
I would rather have 100 SFR's than 100 doors in multifamily. In my market and I assume this would apply to "majority" of markets across the US a single family home will provide more profit per door per month than any Multi-Family Door (This includes expenses). Combine that with a better shot a appreciation and opportunities to sell for top dollar we have quite an investment vehicle.
SFR's will also provide long term tenants (typically easy to manage families), they are also easier to acquire. Everyone has a much better shot and getting a amazing deal on a SFR than a Multi due to the housing "BUBBLE BURST". You are buying from an investor with Multi's, investors dont like to lose money and are smarter than banks.
I think people should by a mixture of SFR's and Multi's. Multi's are profitable and I would recommend buying them. I just think a SFR is much more profitable.
- 12yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
Originally posted by @Oliver Trojahn:
I would rather have 100 SFR's than 100 doors in multifamily. In my market and I assume this would apply to "majority" of markets across the US a single family home will provide more profit per door per month than any Multi-Family Door (This includes expenses). Combine that with a better shot a appreciation and opportunities to sell for top dollar we have quite an investment vehicle.
Andrew,
With the exception of our student houses, our experience has been the opposite: profit per door is greater in our multi-units than our SFRs. We base our numbers solely on cash flow and do not factor appreciation into our analysis - we model all prospects as flat or depreciating at the time of acquisition.
The only advantages of our SFRs are:
1) Non-student SFRs tend to have longer tenancies ... though we have about 25% long-term tenants in our MFRs {Note: a "long term tenant" is defined in the local Residential Tenancies Act as the lessee of a tenancy >5-years in duration}. Student tenancies do not differ between SFR and MFR - a fact of the transient nature of the clientele.
2) Non-student SFRs are easier to sell and you can sell them to retail purchasers who purchase with the emotional premium. Those in the "universityville" district are most likely going to be purchased by another investor and are no different than selling a small residential MFR - though sometimes by parents sending kids to school will {over}pay for one.
A well maintained MFR will also fetch top dollar, it is just your buyer pool will be smaller, more astute, and not emotionally driven. You sell it as you would any other business.
- Investor · Gaithersburg, MD · Member since 2013 · 659 posts · 441 votes12y
One of the big advantages I see. Value of the property. I have an SFR that I increased rent over $200/month in the past 4 years. We just refinanced it. It came in $5k LESS than the appraisal 4 years ago. I think we got jipped but such is the life in the world of SFR's.
With MF's the value would have risen appropriately with the increase in rent. I like the idea that I have almost complete control over the value of the property with an MF and with an SFR it's completely out of my hands.
- Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes12y
I buy single family homes mostly because they cash flow better in my area. I can buy a $100,000 house that will rent for $1200 with some repairs. To get a duplex that would rent for $1200, I'd have to pay $150,000 unless it was a college rental with high turnover and a house that was 70 years older. I just looked at our MLS and the cheapest four plex for sale in an area that I would invest in is $275,000 for $2,100 a month in rent. The crazy thing is people are paying this much for them.
There are also a lot more sfr around and that gives me a better chance to get a great deal on one.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
I have and had both small apts as well as SFH.
I prefer SFH:
Less appliances
Less utility bills
Less maintenance, think snow shoveling & grass mowing
Of all the SFH, I've sold out of my own inventory all but 1 was purchased by an owner occupant. There are maybe 100 times as many owner occupant buyers as investor buyers. Therefore much bigger buyer pool.
Easier to finance.
And owner occupants buyers and the financing is based on sales comps and they could care less on the cash flow, cap rates, IRR, etc.
- Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes12y
Originally posted by @Sam Leon:
While it's locale specific...
Down here in South Florida....
For that same SFR Home owners with no personal possession was $2650, Flood was $2000 and windstorm $3800. Property tax was $3200.
Wow, those are high insurance costs! We own two single family houses in south Florida which we bought new. The insurance for the Minneola house is $31 per month, and for the Lakeland house is $51 per month.
- Jackson, TN · Member since 2013 · 79 posts · 21 votes12y
Originally posted by @Oliver Trojahn:
I think people should by a mixture of SFR's and Multi's. Multi's are profitable and I would recommend buying them. I just think a SFR is much more profitable.
I think this is likely the best idea for many areas. Clearly there is disagreement, and pros and cons to both. So why not diversify.
Buy duplexes to cash flow for single family purchases to hold and get appreciation. Unless there is one correct answer in your market or for your strategy, I think long term, having a mix is good.
- Real Estate Consultant · Kansas City, MO · Member since 2013 · 388 posts · 200 votes12y
I dont think that I saw this answer in the lines of replies, so let me throw one in for thought....
Competition. Its spring...well, almost...hoping.
Tis the season for the flipper. Its that time of year for the flippers to get a hold of the dwindling inventory for their flip project to put on the market in May/June. Prices are running north with bid competition. MFH is something to add to the investment mix when the SFH model is too competitive. For my analysis, I agree with many of the posters here. Its more cashflow and more headaches if mis-managed.
A smart investor should consider all property types for the right mix. Remember, the millenials will be in the market soon, and the expectation is that SFH construction will slow a LOT, and MFH will increase.
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