Deal Analysis: Duplex vs. SFH

[Bastian Kneuse]

HI BP Community,

How difference is analyzing Duplexes or even Triplexes from SFH? In my mind, maintenance and capex may be higher given the size of the building and the possible higher turnover, hence these two assumptions should be increased. Is there anything else I am forgetting or missing? I am curious to understand how other investors analyze multi-family deals.

Look forward to other thoughts and ideas. 

Bastian

[Joe Scaparra]

@Bastian Kneuse Good questions about tenant quality. Yes as a general rule SFH tenants are usually more stable and better than the average duplex tenant. However, if you keep you duplex updated and in good repair, you can attract very good quality tenants on par with SFH.

The two biggest advantages of a duplex over a SFH is the better cash flow, not only when both are fully rented but also when you have one vs none possessing your property. The second and most undervalued aspect is easier to rent a lower cost unit over a higher cost unit. A duplex that rents for $2000 will be easier to keep rented with a lower vacancy rate than a SFH renting for $2000. This becomes extremely important when you experience an economic recession in your location. Rents at $1500 and above will face more pressure to lower in a recession than rents at $1000 and below. In fact rents at $1000 or below may go up during a recession as the rental pool will increase causing rents at those levels to stabilize or go up.

@Gordon Meadows, logically you might assume that a SFH has lower maintenance cost and you might be right. However, per unit of cash flow maybe not. Case in point, one roof on each property but per unit of cash flow the duplex roof will usually be cheaper. Every now and then you're going to have tenants who trash your unit. Since a SFH is larger you could experience more maintenance cost to get it back up since you might have more repairs to accomplish. Remember per unit of cash flow you still have income coming in on one side of the duplex when the other side is vacant being repaired.