What makes people choose housing over apartments?
One plus of owning an apartment complex is the vacancy to mortgage relationship.
With a house, you get a 100% or 0% percent vacancy rate. So you pay all the expenses until you place a new tenant in the house
With an 8-unit apartment complex, one vacant unit translates to a 12.5% vacancy rate. The 7 occupied units can still keep your operation in the black.
My wife and I are looking to house hack a four plex so we can have the other three units cover the mortgage payment and operating expenses while we prepare for our next Real Estate purchase.
I have not seen any studies about it though.
Additionally, you are in a college town so you may able to own a 4 bed house and rent out each room to grad and or undergrad students. As long as UN is open, there will be a steady stream of temporary residents looking to rent instead of buy
@Eric Anderson How is that different from owning 2 quad plexes next door to each other or 4 duplexes? Or for that matter 8 small houses? I doubt you could buy an 8-plex for the same price as 1 single-family house? I know you probably hear this a lot from 'experts' I'm just curious why you believe it?
Originally posted by @Jeff Kehl:
@Eric Anderson How is that different from owning 2 quad plexes next door to each other or 4 duplexes? Or for that matter 8 small houses? I doubt you could buy an 8-plex for the same price as 1 single-family house? I know you probably hear this a lot from 'experts' I'm just curious why you believe it?
First of all, you'd be hard pressed to find 8 SFRs for the same price as an 8 unit apartment building in the same submarket/market so perhaps price is one thing, but perhaps you can make up the price difference in rents, but that aside my answer would be scale-ability. It's easy to manage an apartment in one place rather than 8 houses all around town. You likely have the same flooring/cabinets/appliances in these 8 units, so you can easily repair when problems arise, in 8 separate houses you would not. What about roof repairs? It's much easier to deal with one large roof repair (assuming you are planning you capital expenditures), than 8 small ones.
Economy of scale is what it boils down to in my mind. I would never want to own 20+ SFRs.
@Charles Kennedy I hear these kind of arguments all the time from people that own and promote multi-family and honestly I'm not sure why they make such a big deal about it... Why is it so important to them that people buy 'apartment complexes' versus multi-family or an sfr portfolio?
I own both and I can tell you at the end of the day there is not as much difference as they make it out to be.
Yes I would rather buy 100 units in the exact same place because it is easier and the financing is better. But it is not worth paying the premiums people are these days because there are much better deals in the smaller properties.
If I could find a 100 unit for the same price I could buy 25 4 units I would buy it. But people are way over paying for the larger ones these days. And when I compare the expenses generally people are paying higher expenses for the larger properties per unit because they have levels of employees.
Also, let's look at the capex arguement. 'I would not want to be responsible to replace that many roofs'. Guess what, if you pay $10k per roof to replace 25 4-plex roofs or $250k for your 100 unit complex the cost is the same... If you have a high-rise you may have an argument but then you have other issues.
The argument that makes me laugh the most is 'if I have a vacancy in my 20 unit apartment it is only 5% but if I have a vacancy in my sfr it's 100%'! Well what if you have 20 houses? And oh btw what is the average length of stay at an apartment versus a house? Again I have both and can tell you that people stay far longer in the houses.
'I only have 1 lawn to maintain'. Umm my tenants at my houses cut the grass. At my mutli-family properties I have to pay for that.
You gave the solid, conventional wisdom on the topic. I'm just saying don't believe everything you hear especially with people promoting one approach versus the other. I love both but buy whichever actually performs better financially.
And, look at appreciation. Many of the people jumping into multi-families are doing so because the SFRs they bought have appreciated. Some of my sfrs have doubled or tripled in price whereas my multi-families have only appreciated moderately 10-30%. Why? Many more buyers for sfrs than multi-families.
@Jeff Kehl Great response. I am recently out of college and have yet to own either so it's better to hear insight from people who have been around and have real experience! I'm not sure I agree with the management and roof argument. I feel the management fee would be about the same if you consolidated it all, but your arguments regarding appreciation and lack of turnover in houses is a great point!
Thanks for sharing.