SFR or 2-4 units. Why?

16 Replies

So far I have 5 SFRs, 4 in KC and 1 in Cleveland.  I would love to get into 3-4 units but those 2 markets seem to have mostly duplexes or apartment buildings, with very few tris or quads.  Since you know Cleveland better than I do please let me know if I'm missing something.

Originally posted by @James Wise :

Do you prefer buying single family homes or 2-4 unit homes? Why?

For my buy-and-holds, I prefer SFRs, or multi-family properties that "feel" more like single family houses (like a side-by-side duplex where each unit has its own driveway and garage)...

1) I find tenant quality and tenant retention to be better with SFRs -- they are more likely to live in it like it's really their own, compared to tenants who choose to (or have to) live in apartments/MFRs. Very little if any tenant drama tends to come with SFRs.

2) I can bill water/sewer back to tenants with zero issues in my SFRs (I know, I know, I know, you don't do this, and you advise against it... but I have been doing this for years, and it has worked quite successfully... I think it's something that generally works extremely well with tenants in A/B areas, sometimes C areas, and seldom in D/F areas).

3) Landscaping is handled by the tenants in my single family houses. Less stuff for me or my PM to have to coordinate.

4) Future exit path has more options... can market to other investors, or to owner-occupants (who are generally more likely to want to live in a single family house, unless they're BP-forum-posting "house hackers").

Originally posted by @Chad McLeod :

So far I have 5 SFRs, 4 in KC and 1 in Cleveland.  I would love to get into 3-4 units but those 2 markets seem to have mostly duplexes or apartment buildings, with very few tris or quads.  Since you know Cleveland better than I do please let me know if I'm missing something.

You're correct. Tons of SFR and duplexes. Very few 3-4 units. There are a decent number of 6 unit buildings though.

I'm mostly SFH and duplexes. In my market there aren't a lot of bigger multis and that creates more competition when one becomes available, and there's often more motivation on the buyer side because they have 1031 money. Also, on the management side, bigger multis aren't much fun to manage, they're a different beast. You become a referee more so than a property manager. More calls about the neighbors upstairs walking too loudly at night, playing music, yelling, parking their car in the wrong spot, etc. That's not for me.

Good luck! 

For cash flow I like MF better because it's easier to make the numbers work (at least in my area). For appreciation and flips SFH makes more sense. Having a mix is always nice and gives some diversification.

I don't prefer one or the other, instead I aim for a mix of both. Single family in high appreciating areas, and 2-4 units to gain cashflow to help buffer the expenses. Who knows, maybe my thoughts will change over time.

I have interest in buying 6+ units, or turning old mill style buildings into creative spaces.. but they are all well out of my price range.

Out here east of Cleveland in Lake County it is very hard to find good multi's, even harder to find them where the numbers make sense. I am focusing on SFR's now and hope to buy a couple per year for the next few years, then maybe make the jump into larger commercial multi later on after I have built up a portfolio. Like others mentioned above on SFR's I like being able to have the tenants pay all of the bills, do the lawn and snow removal, etc.

I own all of the above and prefer SFHs.  MFs are priced too high in my area, exit strategy is limited to cheapskate, low-ball investors like yours truly, and I don't like "my neighbor's dog barks all night" phone calls.

While MFs have their place, there is always a strong demand for a house with a yard, especially for people with pets.  I allow pets and charge a pet fee plus monthly pet rent, so generally my rents are very good compared to the "all in" costs.

The only real advantage I see on my MFs is the cost per unit for insurance, taxes, and some repairs is lower compared to SFH, but some of that benefit is lost since I provide lawn mowing at MF. I don't own anything bigger than a 4-unit, but if I did I'd likely have to provide trash pickup and possibly pay water/sewer as well. I hate master water meters as tenants are not encouraged to conserve or report leaks. Let me tell you about the time I got a $600 water bill for ONE month at a duplex, when the bill is normally about $60.... (*wink)

I think if you're going to go multi, my thought is go big or go home.  I don't see achieving much in the way of the economics of scale until you start getting upwards of 20+ units in a single location.  Then you will probably save enough on major repairs like roofs, etc. to offset the cost of provided amenities.

To each their own, though.  If they make money, who cares?  ;-) 

Is it possible to make the numbers work on a SFH that's larger than 1000 SQFT? In my areas a 1000 SQFT home would sell for between $75-$1.00 per SQFT and rent for about 1% of the listing price. The renter pool for a house that is $1000/month seems to be the same pool that could afford their own mortgage.

Originally posted by @Ola Dantis :

@James Wise Currently, we have both. However, I prefer multifamily (2-4 units) because of Vacancy. 

When a tenant moves in our MF, I don't break a sweat and the mortgage is covered (or partly) as opposed to SFR.

 Not to mention the risks associated with a totally vacant property. Vandalism, frozen pipes etc...

Originally posted by @Brian Ellis :

I don't prefer one or the other, instead I aim for a mix of both. Single family in high appreciating areas, and 2-4 units to gain cashflow to help buffer the expenses. Who knows, maybe my thoughts will change over time.

I have interest in buying 6+ units, or turning old mill style buildings into creative spaces.. but they are all well out of my price range.

 A nice mix is always a smart play.