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 ?
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.
@James G. You also have to consider the buyer pool when/if you plan to sell. You can sell a SFR to anyone where as with MF you're going to mainly attract investors, and investors are usually looking for deals under market value (at least you should be 😉).
Depending on the construction, you can still have a good buyer pool with duplexs. When you get into triplexs and up is when the average buyer pool drastically changes. There’s pros and cons to both so it comes down to what works best for you.
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 ?
I'll give you my psychological response 1st, then the logical response. We use to own SFHs as rentals and every time one was vacant it drove me nuts, but w/ multi's when one unit is vacant I'm not as crazed because money is coming in w/ that asset. So we stopped buying SFHs to hold to stop the crazed feeling when one was empty.
Now the logical response- I don't know the Cleveland market but if you're able, make your decision based on the numbers. What's the cost to acquire SFHs versus a multi; what's the ROI of one versus the other in your area. Do the properties appreciate or are you strictly buying for Cash Flow. What are the vacancy rate numbers in the neighborhood your considering? Is it different for SFHs versus Multi's. You may end up combining a little bit of your gut call w/ the numbers to make a decision which way to go.
@Crystal Smith
In Cleveland I can buy a decent Sfh for around 80k- 100k and a decent duplex for around 100-120k. I can put 25% down for either. I'm looking for value add properties where I can do something to raise the rent a bit and force appreciation slightly. I would have more wiggle room with a sfh because the costs are cheaper but I am mainly concerned about cashflow and scaling. I want to buy 1 or 2 a year and I feel that's easier done with SFHs if I can get longer term tenants who are not causing problems. Ideally I would love 10 duplexes with no issues but I feel (not logical, I know) that duplexes bring lower quality tenants who are more short term. I'm very new to this and trying to make the most reasonable approach so I can grow my money into a large REI portfolio.
I buy and hold in the eastern suburbs of Cleveland and have been very happy so far with duplexes. I have had some appreciation however I am in it for the cash flow. My experience has been that screening is the biggest factor in minimizing my expenses (turn, vacancy, damage, maintenance). You can set some additional criteria for your applicants that will help identify tenants who are most likely to be successful long term renters. I will caution you that if you aren't very well versed with tenant/landlord law that you should review your criteria with someone who is or an attorney to make sure that you do not inadvertently violate fair housing laws. If you want to reach out I'd be happy to discuss some of my thoughts on screening.
Lately I have been looking and I haven't found any SFHs that generate enough cash flow for me to put in offers, I think that SFH sellers are looking for retail buyers and Duplex owners are more realistic in pricing units knowing that the next buyer has to make money. Your best chance for SFHs will probably be after the freeze on foreclosures in Cuyahoga county is lifted.
One last thought is that the additional cashflow on the Duplexes will be good for recapitalizing once you have a few properties. There are lenders around that will lend based on rents and cashflow on a group of properties together as opposed to a pure residential appraisal for individual properties. The rates and fees are higher on those loans but they don't have caps on number of mortgages or cap you based on w2 income to debt ratio, its just the cost of growing beyond your first 2-3 houses.
I wish you the best of luck and as a local Clevelander would be happy to help you in any way I can.
Andrew
@James G.where are you looking in Cleveland if you don’t mind me asking. I’m from Cleveland and have been hunting for duplex’s but they all seem to priced low to get a lot of people looking at them and then the realtor says for everyone to submit their best offer and someone always pays over asking all cash making it very competitive right now especially in the B areas I’ve been searching.
Thanks, Tim. I appreciate the feedback. I think for me it’s not just that the house in the worst area is the best one, it’s that the house in the best area has now had 4 tenants in 4 years. And one of those tenants ended up having legitimate mental issues and did a fair amount of damage to the home.
But you’re probably right that if I had a bigger portfolio things would even out more. Thanks again for sharing your thoughts.
@James G.where are you looking in Cleveland if you don’t mind me asking. I’m from Cleveland and have been hunting for duplex’s but they all seem to priced low to get a lot of people looking at them and then the realtor says for everyone to submit their best offer and someone always pays over asking all cash making it very competitive right now especially in the B areas I’ve been searching.
Inventory in Cleveland has really dried up lately, so I think that’s a big factor in prices going over asking price. It’s just supply and demand. I know Lakewood is especially bad right now. It was popular to begin with, but now that hardly any multis are coming on the market in that area there is a big rush of offers when they actually do. Tremont, Ohio City, etc., are probably similar, but I haven’t watched them as closely.
@Crystal Smith
In Cleveland I can buy a decent Sfh for around 80k- 100k and a decent duplex for around 100-120k. I can put 25% down for either. I'm looking for value add properties where I can do something to raise the rent a bit and force appreciation slightly. I would have more wiggle room with a sfh because the costs are cheaper but I am mainly concerned about cashflow and scaling. I want to buy 1 or 2 a year and I feel that's easier done with SFHs if I can get longer term tenants who are not causing problems. Ideally I would love 10 duplexes with no issues but I feel (not logical, I know) that duplexes bring lower quality tenants who are more short term. I'm very new to this and trying to make the most reasonable approach so I can grow my money into a large REI portfolio.
The way to eliminate how you "feel" is to establish objective criteria for screening tenants. Those criteria should be in writing and applied to every applicant. There should be nothing subjective in your criteria. By the way, establishing such a criteria will also reduce and/or eliminate the possibility of being accused of discrimination. If your criteria are in writing and being applied to everyone equally, you can set the bar as high or as low as you like. This would apply to SFH as well as Multifamilies.
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.
For me, how long a tenant stays depends on tenant selection. A blue collar family stays the longest. I owned an SFR rental 37 years which started off as a failed flip with two blue collar families staying over 12 years each. The shortest is 3 single girls staying 9 months moving out owing water bills put in their name that they didn't pay and I didn't know about. The municipality transferred it to my tax account with penalties. The handy blue collar guys had no problem doing repairs, they actually go on to the roof to sweep, clean gutters, and once fixed a crooked vent on the roof. Would 3 single girls do that, or would you hear constant complaints, like, "the doorknob is loose".
I like my duplexes and triplexes as they have better cash flow, and investors seem to prefer them. The one downside of SFR rentals is landlord insurance, where if the property is vacant for over 60 days, the insurance is in danger of being void. So far I haven't encountered the problem yet though insurance agents say "don't worry about it".
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.
For me, how long a tenant stays depends on tenant selection. A blue collar family stays the longest. I owned an SFR rental 37 years which started off as a failed flip with two blue collar families staying over 12 years each. The shortest is 3 single girls staying 9 months moving out owing water bills put in their name that they didn't pay and I didn't know about. The municipality transferred it to my tax account with penalties. The handy blue collar guys had no problem doing repairs, they actually go on to the roof to sweep, clean gutters, and once fixed a crooked vent on the roof. Would 3 single girls do that, or would you hear constant complaints, like, "the doorknob is loose".
I like my duplexes and triplexes as they have better cash flow, and investors seem to prefer them. The one downside of SFR rentals is landlord insurance, where if the property is vacant for over 60 days, the insurance is in danger of being void. So far I haven't encountered the problem yet though insurance agents say "don't worry about it".
Thanks for sharing, Frank. I appreciate your input. I’m dealing with one of those water/sewer scenarios right now. Not fun!
@James G. I hate the answer "it depends" but bottom line is if the numbers work then the numbers work. Think about the target audience of tenants. In my area, the type of tenant that would rent out a unit in a multifamily is much different than the quality of tenant in a SFH. Which means more expensive appliances and home quality, but more frequent repairs in the lower income multi unit. I think risk tolerance, comfort level and end goal are definitely factors here
@Chad McLeod yeah I’ve been looking in Lakewood and shaker you’re competing against 10+ offers within a day
I am from Cleveland and invest in both single family homes and duplexes. I will grant you that the duplexes generally cash flow better. But I personally prefer SFH. They are much easier to manage and are always much quicker sales if I need to raise cash. In a previous life I was once a social worker. The past three months managing tenants in duplexes has reminded me why I left the profession.
The stress of work uncertanity, stay in place orders and the constant media on the health crisis has left most of the tenants I manage for REMAX and personally stressed, upset with their too close neighbors in duplexes and calling me constantly to mediate disputes. For most investors the answer to my comments is hire a property manager. Maybe my solution is to retire.
@Tyler Lyren
I'm looking everywhere but of course the b class neighborhoods. Lately been considering b/c like Garfield heights. I want cashflow and I want the best bang for my buck. I have about 50k I want to invest and was wanted to get a decent cashflowing property. Maybe Cleveland is not the right market?
@Chad McLeod
I'm not constantly running the numbers yet but I see some in Tremont and upcoming cities and am hoping to get them under asking price. Is that unrealistic? I figure for 100 offers if I get 1 then it's a win. I'm hoping for 10-15% off asking price in some of those areas. Parma, Euclid, Tremont, Garfield heights etc...
@Chad McLeod
I'm not constantly running the numbers yet but I see some in Tremont and upcoming cities and am hoping to get them under asking price. Is that unrealistic? I figure for 100 offers if I get 1 then it's a win. I'm hoping for 10-15% off asking price in some of those areas. Parma, Euclid, Tremont, Garfield heights etc...
Tremont is very popular. IF you could get a home under asking I doubt it would be by much, and almost certainly not 10-15%. If a home is reasonably priced it gets snapped up almost immediately. I haven’t actually offered on any places in Tremont but it’s an area I really like so I’m always checking. It’s very similar to Lakewood — tons of demand but not much supply.
Parma you might be able to get a little better deal, but 10-15% will still be hard. I think Parma is a solid area for families, but not nearly as popular as Tremont or Lakewood. Whereas Tremont and Lakewood are popular with younger people who want access to bars, restaurants, etc., people in Parma are probably a little older and not as concerned with nightlife. Think gastropub vs. Applebee’s.
I haven’t looked at Garfield or Euclid as much simply because I think they are more C class areas. Certain pockets will be better and others will be worse, but I think generally they are C. I do know Euclid has become more popular since Amazon moved in though.
Bear in mind I’m an OOS investor, so the people who live there locally can give you a more in-depth analysis. I’m just going off my own research and the info I have picked up from my realtor, PM and other investors who live out there.
@James G. Or charge each a percentage of the water bill per month as I do on my units. Depending on square footage or number of occupants in each.
@James G.
I bought it for $150 4 years ago now interested buyers are calling me to sell it for 300k
4plexes in the MLS are around 300k-400k
And I have seen all the way up to 600k for a 4plex
There are some very luxurious 4plexes going for 800k