Multi vs SFH

9 Replies

Considering multi-family investments. Wondering if calculations for MFH Are the same or different than for SFH. Specifically are there things that you have to consider further with say a 16 unit small apartment building than a SFH or if you bought 16 SFH? I realize the numbers would be bigger/different but are there addition costs to consider with multi-family or would the same formulas apply?

The biggest difference is that the costs should be lower on a 16 unit building vs 16 SFRs.  You get economies of scale by having one roof, one set of plumbing, one common area, one parking area, etc.  It's also one location to keep an eye on and send contractors to vs 16 different addresses.

Financing will be different and will impact what your debt service payments look like each month. A single SFR might have a 30 year fixed loan at 3.5% whereas the 16 unit building might have a 20 year amortized 5 year term loan at 5%.

With SFR's you've got significantly higher transaction costs...if you're paying $2K in loan costs vs maybe 4-5K for the 16 unit building that's $32K for closings vs 4-5K.

The list goes on and on...they are different types of investments and each has it's pros and cons.

Thanks @Michael Seeker  !

Great info for consideration.  So you know would the MFH in this scenario likely require a larger down payment %?  I am thinking 25% but don't know if the apartment would require more?

@Michael Seeker  Well said

I will add.. If you don't want to be totally hands off you can ask tenants in a larger MF building to help out on mowing lawn, plow snow and even collect checks for you for a reduced rent. People will do it all the time and you may run into good tenants that will even stretch it further changing lights etc..

Also remember for the most part MF values are based on cap rate and NOI.. SFR values are normally based on comparables..

Originally posted by @Tom Shepard :

Thanks @Michael Siekerka !

Great info for consideration.  So you know would the MFH in this scenario likely require a larger down payment %?  I am thinking 25% but don't know if the apartment would require more?

Depends on the lender, your experience and timing. I'm currently getting 80% LTV, 5 year term 20-25 year amortized loans at about 4.5% interest. That's not from the first bank I called about a loan, that's from talking to as many lenders in my area as I could find and going with different ones for different properties depending on who was more aggressive about lending at the time.

The tide changes once you get past 4 or 10 SFRs.  There's a lot of discussion about the 4-10 range so I won't go into it here.  You can search for "10 loans" at the top right for more on that.  Any additional loans beyond that limit would have to be commercial loans (not Fannie/Freddie backed 30 year loans) so you'd be in likely the exact same boat on loan terms you'd just have to close many more of them to get there.

Good food for thought. One my goal's to have a 4 unit before the year is out.  I'll continue learning about MFH. This is smaller scale but I like the idea of 1 roof. 

Thanks everyone!  Great info -- @Michael Seeker  -- sounds like you've had tons of experience in the MFH...hope you don't mind me picking your brain some more if thats the route we go!

Thanks again to all!

@Tom Shepard looks like Michael gave you some good info. Another thing to consider are the costs you'll have every month with a MF. With a SFR, you typically have the tenant pay all utilities, clear snow, etc. For a MF, you will generally be paying some utilities yourself every month (water/sewer, trash, maybe others too) as these are often done for the whole property instead of being individually metered, and you'll likely have to pay to have the parking lot cleared when it snows, so you have to figure those costs in when determining what your ROI will be. Something to look out for when analyzing potential deals: see which utilities are separately metered, and which utilities the landlord pays for. I've seen large complexes where the owner pays for everyone's electricity - yikes!

@Kimberly T.  

 Good points to remember, thanks.

We currently have a condo near a local college and we include the utilities (water, electric and sewer) in the rent to keep the students from having to try getting the utilities put in their name.  We have a clause that they get billed for anything over the lease amount at the end of the lease, or it is withheld from the security deposit if the end the lease.  So I know what you are talking about to a degree...good to remember!

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