Advice: Start small single-family, or start small multi-family?

3 Replies

We are relatively new to real estate. We’ve owned two rental properties one of which we recently cashed out of. We decided to pay off some old debt and we have about $5000 liquid cash left to reinvest. We found a couple of deals including a single family home priced well bellow tax assessment with lots of updates and with a little TLC it will have about $35000 in equity and will cask flow $210 off the bat. Its also a 3 br brick rancher. The other deal is a duplex in a busy growing area close to shopping, transit, travel etc. The asking price is $121000 and it hasn’t been updated since the 80’s. I’m pretty sure I can get them down on the price and will definitely meet the 1% rule. I’m sure that with some forced appreciation and a few updates we can rent each side for $650-$700. Also it’s in a development which could lead to future ownership of other units adjacent to the property. Only thing is, we will need to borrow equity from our other property to purchase the duplex. What would you guys do?

I would think about what your goals are. I can't give you a straight answer, because it's a super personal decision. But here are some questions to consider. 

Are you looking for more doors or more cash flow? Will the duplex cashflow significantly better than the SFH for the extra work of another set of tenants and maintenance? What kind of holding costs will you have for each while you fix them up and until it is able to rent? It sounds like the turn around time will be a lot quicker on the single family.

Also, how desirable are duplexes in your area? Will you have more turn-over as people "upgrade" from renting a duplex to renting a house?

That's kind of how I would look at it. If the numbers make sense, multi-family would be a great way to scale faster. I just haven't personally found any multi-family that cash flow better than equivalent per door SFH.

@Shane Paula Wood I’d agree with Cassie. It sounds like you understand how to analyze a deal, so I would run both deals and determine which is most attractive. Also consider how you can leverage each of these properties for your next deal if you plan to continue investing. Probably not a bad idea to run the next hypothetical deal by your bank and see in their eyes, which property would allow for the most leverage to be created for the next deal. Great problem to have, 2 good deals. Good luck!
Originally posted by @Shane Paula Wood :
...a single family home priced well bellow tax assessment

 As long as the numbers work in your favor, either would be acceptable.

However, I want to point out that using the tax assessment to determine if a price is a good value is, in most cases, the wrong way to do it.  The assessment might be way too low or way too high.  The best way to determine the value of a house in a certain location is to compare it to the price of recently-sold similar houses in the immediate area.  The house is worth whatever buyers in that market are currently paying for similar houses -- not what the tax assessor valued (for tax purposes) the house at 4 years ago.