Duplex vs SFH why shouldn't I?

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Duplex vs SFH why shouldn't I?

James G.
MD · Member since 2018 · 71 posts · 23 votes

Why shouldn't I buy a duplex as a first time investor in Cleveland vs a Single family home? Assuming getting pre-approved and cash for the down payment isn't an issue what are the reasons to avoid a duplex?

I assume it's just risk tolerance due to having 2 of everything and possibly more repairs? I just see a duplex as safer because you are less likely to have both sides vacant and will always have someone contributing to the mortgage. I'm trying to iron down my target for the next 90 days and figure out the best path to start down to building financial freedom. As far as scaling goes, on paper a duplex would be faster because of the cashflow. What am I not considering ?

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John KosterPro Member
Investor · Valley Village, CA · Member since 2012 · 147 posts · 142 votes
6y

On paper the duplexes cash flow better, but in my experience, they never seem to live up to the pro forma prognostications.

The downside about duplexes in Cleveland is turnover costs & maintenance in general.  Duplexes tend to attract people looking for a more temporary situation, whereas single homes attract small families looking for a more stable situation.   I don't think I have ever gone a year without at least one tenant moving out from each of my duplexes.  In comparison, I think I have only had one tenant move out after a year from one of my SFRs.  Turnover costs kill cash flow.  

Also, I have had 3 or 4 evictions over the years - all from duplex tenants.  Zero from my SFRS.  

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    6y

    @James G. as long as you are comparing apples to apples in terms of the location then a duplex will generally out perform a single family home over the long haul. I sell a lot of 2-4 units here in Chicago, and we generally find that 3 units perform the best in this market. I am sure it will be different in Cleveland. The only thing to watch out for is the utility setup. For instance, in a single family rental you often times won't pay anything as far as utilities. In a duplex, you may pay water, heat, hot water, common area electric, landscaping and even snow removal. Make sure you understand what you are paying for to check your numbers. 

    4Reply
  • Ben Smalley
    Property Manager · Cleveland, OH · Member since 2016 · 67 posts · 53 votes
    6y

    I started investing by purchasing a duplex in Cleveland as well. Now own 16 units and manage more for clients. Duplexes are better and will outperform. What's nice is at 50% occupancy you are still covering PITI and when the second one rents it's almost all profit.

    In Ohio duplexes there tends to be a single water meter so you will incur the water charge vs. a SFH where you can pass along all the utilities but overall duplex is the way to go. Good luck!

    3Reply
  • John KosterPro Member
    Investor · Valley Village, CA · Member since 2012 · 147 posts · 142 votes
    6y

    On paper the duplexes cash flow better, but in my experience, they never seem to live up to the pro forma prognostications.

    The downside about duplexes in Cleveland is turnover costs & maintenance in general.  Duplexes tend to attract people looking for a more temporary situation, whereas single homes attract small families looking for a more stable situation.   I don't think I have ever gone a year without at least one tenant moving out from each of my duplexes.  In comparison, I think I have only had one tenant move out after a year from one of my SFRs.  Turnover costs kill cash flow.  

    Also, I have had 3 or 4 evictions over the years - all from duplex tenants.  Zero from my SFRS.  

    7Reply
  • Chad McLeod
    Member since 2019 · 58 posts · 60 votes
    6y

    I'm just getting started in Cleveland but will be closing on a duplex pretty soon here. From a numbers standpoint, it's not even close. The rents on SFH seem to be slightly higher than what they would for one side of a duplex, but not enough to make much of a difference. What's really interesting is that the sales price on duplexes is typically not all that much more than SFH, at least in certain areas.

    As I said, I'm just getting started in Cleveland. I own a SFH in Parma that I bought, I believe, last October. Those tenants have been a nightmare from hell and I'm in the process of evicting them. I highly doubt I will ever buy another SFH in Cleveland.

    0Reply
  • James G.
    OP
    MD · Member since 2018 · 71 posts · 23 votes
    6y

    @Ben Smalley

    Can't I submeter the water and then bill each tenant directly?

    0Reply
  • James G.
    OP
    MD · Member since 2018 · 71 posts · 23 votes
    6y

    @John Koster

    This was exactly my thoughts. The type of people who rent a sfh home I thought would be more family oriented and looking to stay long term. Cashflow is best with long term residents since most PM require a month of rent, 10% a month, additional fees. The type of people renting in a B class neighborhood on a single family home could be better for my portfolio overall. Or at least allieviate concerns at the start.

    0Reply
  • Ben Smalley
    Property Manager · Cleveland, OH · Member since 2016 · 67 posts · 53 votes
    6y

    I am not an expert but do not believe you can submeter the water like you can electric but if you can just be sure on the investment cost and payback period. May not be worth it. I looked into getting a building separately metered and it wasn't worth it. 

    0Reply
  • James G.
    OP
    MD · Member since 2018 · 71 posts · 23 votes
    6y

    @Chad McLeod

    Thanks for your input. Parma was a big area I was focused on because of all the praise it gets. Very surprised to hear you had issues there. If I can snag a duplex for around 100k I would be interested.

    0Reply
  • Chad McLeod
    Member since 2019 · 58 posts · 60 votes
    6y
    Originally posted by @James G.:

    @Chad McLeod

    Thanks for your input. Parma was a big area I was focused on because of all the praise it gets. Very surprised to hear you had issues there. If I can snag a duplex for around 100k I would be interested. In general I think Parma is a good area.  You can get bad tenants in even the best neighborhoods.  

    In general I think Parma is a good area, these just happen to be bad tenants.  And honestly that can happen anywhere.  You can get great tenants in rough areas and bad tenants in good areas.  

    Case in point -- I also own a few SFH in KC and the house I own in the "worst" area has had the same tenant, a single guy, in it for over 5 years now and he has never been late on his rent. He has told me he has no desire to ever leave. Conversely, I paid almost twice as much for a house in a suburb of KC that is, at worst, a B+ neighborhood with great schools, amenities, etc., and every person/family that has rented has left after 1 year. Because of this I no longer make assumptions about what kind of tenant will be better. I do think the neighborhood is important, but as far as tenants go I feel like it ends up being a crapshoot as to whether or not they will stay.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    People like to say duplex only have 50% the vacancy of single family, but it happens twice as often. You have twice the number of things to break. In many ways a duplex is just like two small houses, but with the added PITA factor of shared walls. When people refer to the economy of scale in multifamily, that really doesn't help much until you have 10 or more units under one roof. Of course it depends on the location and quality of the properties we are comparing.

    1Reply
  • James G.
    OP
    MD · Member since 2018 · 71 posts · 23 votes
    6y

    @Ben Smalley

    https://truesubmeter.com/#description

    I was thinking solutions like this which have been mentioned before online here. I would always want my tenants paying the water.

    0Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    Lowest turnover will be with single family properties. Almost all of my tenants seem like lifers and won’t ever leave due to low credit scores or unable to qualify or afford to buy a home. My strategy is to have low turnover due to keeping my tenants with cheap rent compared to similar properties nearby. Less headaches = a win for me. :)

    5Reply
  • Anthony Murphy
    Tyler, TX · Member since 2020 · 25 posts · 7 votes
    6y

    @James G.

    Think the area your picking would be the biggest factor some areas duplexes and apartments aren’t what ppl like to rent in the area. Let the market help you determine that

    0Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @James G. Duplex is the way to go

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  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @John Koster:

    On paper the duplexes cash flow better, but in my experience, they never seem to live up to the pro forma prognostications.

    The downside about duplexes in Cleveland is turnover costs & maintenance in general.  Duplexes tend to attract people looking for a more temporary situation, whereas single homes attract small families looking for a more stable situation.   I don't think I have ever gone a year without at least one tenant moving out from each of my duplexes.  In comparison, I think I have only had one tenant move out after a year from one of my SFRs.  Turnover costs kill cash flow.  

    Also, I have had 3 or 4 evictions over the years - all from duplex tenants.  Zero from my SFRS.  

    This. MF turns over far more frequently and attracts a lower quality, blue collar tenant. I have had Doctors and Executives rent houses from me. Never would they rent a duplex lol. The one apartment I rented out turned over every few months, very temporary situations. One guys divorce ended, another guy moved out of state because he got his gf pregnant, another one moved out of state to be closer to family. They had no roots here and could  move everything they owned in a minivan....

    0Reply
  • Zeke ListonBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2018 · 1k+ posts · 1k+ votes
    6y

    I personally think that a single-family is riskier than multi-family @James G. When you have a vacancy on a single-family, you aren't bringing home ANYTHING. With a duplex, you can stagger the lease terms so you only have one vacancy at a time. I like the idea of that because the last thing I want to do is pay for 100% for the expenses when I have a vacancy. 

    The flip side of the coin is that single-family tenants can sometimes be more long-term. 

    [email protected]614-665-5793
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    2Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    6y

    The good news is that you have selected two good markets in KC and Cleveland. I think that a duplex is a better option. Even better is a fourplex. Dig deeper and and a bit more patient but make sure you have a lender that you can act on asap.

    0Reply
  • Donald Muschany
    Investor · Sarasota Florida · Member since 2019 · 29 posts · 5 votes
    6y

    I would agree with the above statements. If your looking to BRRR then maybe a single family however with duplex its really nice to always have an income meaning if 1 of your units is vacant your still pulling in an income. Sometimes both units might be vacant but usually at some point and time your leases will not always renew on the same date and they will be spread out helping reducing the risk. I hope that helps!

    Don 

    0Reply
  • Carlos Gonzalez
    Investor · Phoenix, AZ · Member since 2015 · 346 posts · 170 votes
    6y

    @James G.

    For sure go for the duplex and if you can go for 4plex. I did that and it worked out beautifully. Sure, the expenses and utilities might be higher but you will get more income you will get more experience faster. I started with a 4plex here in Phoenix now I have 20 units. Combo of triplexes and 4plexes.

    0Reply
  • Jordan Autrey
    Real Estate Broker · Houston, TX · Member since 2019 · 84 posts · 12 votes
    6y

    @James G. Hey I’m also working in the Cleveland market. Would love to connect and learn more about your goals!

    1Reply
  • Tim Houzenga
    Morrison, IL · Member since 2016 · 48 posts · 68 votes
    6y

    @James G.

    If they are good deals.... why not both!?

    0Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @James G. Duplex over SFR all day long. If you need an investor friendly agent back there that owns investment property and works with out of state investors let me know and I can put you in touch with someone I have worked directly with.

    0Reply
  • Dan DiFilippoBusiness Member
    Real Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes
    6y

    @James G. I make the case that multis are in a bubble. I can't speak specifically to your market, specifically, but I encourage you to consider the points I make in this post and down in comments. I find agents/brokers are very task oriented and are not the strongest macro thinkers. They sell multis because multis are selling. I may be wrong, but please have a look and let me know!

    https://www.biggerpockets.com/topics/845122

    [email protected]910-745-6972
    Brookdale Property Management
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    1Reply
  • Chad McLeod
    Member since 2019 · 58 posts · 60 votes
    6y

    I'm curious to hear where people are investing that their SFH tenants stick around for a long time. Like I said in my other post, I have SFHs in KC and aside from the one guy who has been there since I bought it, the others all leave after their 1-year lease is up. My PM seems to be on top of things and communicates well with the tenants. The houses have been taken care of and repairs are made quickly. I guess you could maybe say location on one of them, but the others are in pretty good to very nice areas.

    I know conventional wisdom says you get longer-term tenants for SFH but that hasn't really been the case for me. What markets are you guys investing in where you're finding long-term SFH tenants? Do you think it's the market? The neighborhood? The property type? Genuinely curious and would appreciate people's thoughts.

    0Reply
  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    6y
    I think the neighborhood and property type dictate the duration of time they stay. I think you have just been lucky when it comes to your worst grade property finding a good tenant. I think if you bought a few more the law of averages would start to factor in and vacancy would go up in lower grade areas. Before going with the duplex look at submetering and other things that if not done could eat up cashflow. In general I would say the duplex cashflows better and the single family appraises better but if the appraisal is not as important maybe the duplex which could lead to better COC with a brrrr. It depends on your goals.
    1Reply
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