Which Is Better – Single or Multi-Unit Real Estate?

by | BiggerPockets.com

Relative to real estate, the term Fundamental Investor can be applied to those of us who hold property long-term for the present cash flow and future appreciation.  Our ability to hang on to real property long-term is a function of the property generating income in excess of holding costs, which is most often accomplished through leasing.

All fundamental investors in the real estate market agree on this basic principal.  However, not all of us agree as to what type of vehicle is best to accomplish our objective.  Some are die-hard single family investors, while others focus on multi-family residential, or even commercial and industrial.  All are viable strategies but each has advantages and disadvantages, which is the subject of this article.

The way I am going to attempt to tackle this is to compare and contrast each of the property types with respect to a number of considerations, which are of primary concern to me as a fundamental investor.  These are:

  1. Ease of Purchase
  2. Consistency of Income
  3. Diversification of Income
  4. Ease of Management / Maintenance
  5. Ease of Liquidation
  6. Likelihood of Appreciation

As you can see in the table directly below, I’ve gone though and rated each of the property types with respect to each of the considerations in the range of between 1 and 5, with 5 being the best.  I then tallied up the scores for each of the property types.  This is not scientific in any way, but it does illustrate what I believe to be the general dynamic.

This table, as well as the analysis which follows, presumes 1 structure and 1 transaction.  Furthermore, in the case of Multi-family and Commercial, this analysis presumes a structure with multiple rentable spaces.


Simply glancing at the scores will identify Multi-Family residential as the best over-all bet in my opinion.  The Commercial / Industrial could either be excellent or extremely bad, depending on factors that I will discuss below, leaving the single family somewhere in the middle.  Let us talk through each of the criteria to further understand the scoring.

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1.      Ease of Purchase

The single families scored the highest in this criterion.  On balance, they are the most reasonably priced and the easiest to finance, which makes them the most accessible to small investors.

The multi-family scored 4 in this criterion, because while small buildings (4 units or less) are relatively easy to finance with a Fannie / Freddie salable note, presuming that you meet all of the qualifying standards, the larger buildings must be financed with either a commercial note or creatively, both of which require extensive knowledge and experience.  Another reason multi-family residential scored lower than SFR in this criterion is because often these buildings carry a higher price tag, which can require a higher down-payment and better credit to bring them down.  Thus, a combination of knowledge, experience, cash, and credit can make multi-family a bit more difficult to acquire.

Finally, commercial / industrial buildings are typically the most expensive and can be quite difficult to finance.

2.Consistency of Income

In this category commercial / industrial buildings can either be extremely good, or extremely bad, which is why I scored it in a range.  If you are lucky to land an 5-star credit tenant who signs a 5, 10, 15, or even  a 50-year lease, then obviously you can comfortably rest on that high horse of yours looking down upon the rest of us mere mortals.  However, should you have a vacancy it can potentially take years to fill it, costing you a boatload in carrying costs.  So, this is kind of a niche market and while some do very well here, others loose their shirt.  In important point as well is that this type of an investment is much more micro-market driven.  There are part of the country and World where commercial / industrial works very well, while in other locals it can be very, very difficult.

SFR and Multi-family each have strengths and weaknesses with respect to consistency of income.  Most investors agree that tenants tend to stay longer in free-standing single family units – people like their privacy.  However, when vacant the SFR really takes a bite out of the cash flow, because while there is no income being produced, the expenses still have to be met.

A multi-family building, on the other hand, by definition provides built-in diversification of income that is clearly not possible with SFR, which in my opinion offsets the potential higher vacancy rate.  Furthermore, there are ways of choose your multi-families in a way that addresses unit desirability issues and results in people staying there longer.

One last thing I’d like to mention here is that while in the residential world we are dealing with an item of necessity – housing, in the commercial / industrial world real estate is often a desire more than a necessity.  As such, commercial real estate can be much more susceptible to economic fluctuations.

3. Diversification of Income

Question:  When going into battle, would you prefer to have one soldier on your side, or three?

I prefer to have three – if one goes down, I still have two others to get the job done, and for this reason I like multi-unit property.  The only reason I scored multi-family residential higher than multi-unit commercial is again because commercial units can take a long time to fill when vacant.

4. Ease of Management / Maintenance

This is another area where Commercial buildings can either outshine the competition or completely tank. I am, of course, talking about the long-term triple-net leases which preclude no vacancies over prolonged period and place the burden of up-keep and maintenance on the tenant.  If you are fortunate to own a building with 5-star credit rated tenants on 20-year triple-net leases, consider it maid.  On the flip side, though, carrying and maintaining a 20,000 square foot facility that is sitting vacant is killer.

Relative to SFR and multi-family, the thinking is simple: if you need to own 120 units in order to achieve your investment objectives, would it be more convenient if they were all SFR scattered throughout, or would 6 twenty-unit buildings make more sense?  For me, the multi-family makes sense here.  There is a lot of efficiency.

Now, it may not be the best idea to own 6 twenty-unit buildings from the stand point income diversification since each one of those buildings constitutes 1/6th of your income.  So, you may choose to split the difference and go with 30 four-units, or some other diverse combination of lager and smaller buildings.  Plus, there may be another reason to own smaller multiplexes, which brings me to the next consideration.

5. Ease of Liquidation

The simple reality is that the SFR is by far the easiest to sell, which is why I rated it a 5.  There are a lot of potential buyers, and there are great financing options available for those buyers.

Small multiplex (4 units or less), however, also rates very favorably here as compared to larger buildings.  For one thing, in today’s difficult economic environment more and more folks are opening up to the possibility of becoming owner-residents in a small multiplex in an attempt to off-set personal expenses.  Furthermore, there are a lot more investors out there who are able to bring down a 4-plex rather then a 20-unit, both in terms of down-payment requirement, availability of credit, and expertise.  Thus, it seems that the market of potential buyers for your small multiplex is rather large as compared to larger structures.

Naturally, there are many fewer players in the commercial / industrial space as this is very much a niche market, requiring specialized skills and deep pockets.

6. Likelihood of Appreciation

Your guess is as good as mine on this one, which is why I didn’t attempt to evaluate this.  Yes, we all hope that our buildings appreciate and we do whatever we can to ensure that they do.  But the reality is that none of us have any control over the fiscal policy, the monetary policy, the job markets, or the consumer trends, all of which contribute to appreciation or lack thereof.  We can speculate, but we can not predict the future…


While it is very difficult, if not impossible to say unequivocally that one is better than the other, I think it is evident that each type of property has its’ benefits and drawbacks.  I hope that the thinking I put forth in this article helps you determine your comfort zone around the issue of SFR vs. Multi.

When choosing which path to take, you must remember that your priority should be Not to loose!

What is your preference? Single, Multi, Commercial? Why? Leave a comment below and let’s talk about it!
Photo: kevin dooley

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben the author of the Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. Great article and information!
    I prefer single family for a couple reasons.
    1. In my area sfr have better cash flow than multi family.
    2. There is a much greater supply of sfr than multi family and I can get a much better deal on sfr in my market.
    3. In my experience it is much easier to refinance a sfr and pull cash out which is a key to my model.
    4. There is a low supply of sfr rentals and high demand from previous home owners who were foreclosed on or did a short sale and still want a house, not an apartment.

    5. While try the multi family provides more diversification of something happens that causes the multi family to be completely vacant it could be devastating. The issue I have seen around here are meth houses. Now while it is rare, a meth lab can ruin even a seasoned investor if it happens in a large complex. I have seen a 40 unit plus complex condemned by the city due to a meth lab. The entire building had to be remediated and It was vacant for over a year. If it happened to a single family home, it would have been a much more manageable situation.

    • Mark,

      Thank you for your comment. You seem to have your finger on the pulse of your marketplace. What you are talking about is a micro-analysis of a specific market. And you are right, SFR may very well be the best route in you marketplace. What I tried to do in the article is to discuss the macro, which may not be applicable to every marketplace.

      Thank you for reading and commenting.

    • Christine Kwasny on

      Same here. I would prefer SF for all the reasons cited, but have yet to purchase one due to the market conditions listed here. SF can make me money right now, plexes not so much. I think this may be due to many plexes being bad investments with owners not wanting to take the loss like many homeowners have been forced to do. I am watching and waiting for a good one to come up.

      • Christine,

        I almost missed your comment – sorry. I think that there may be another reason for why you struggle to find multi buildings that are a good buy – investors in the know don’t want to sell right now. Unless they are distressed. Why not? Because everybody knows that inflation is coming and RE, specifically large-ticket multi-unit RE, is a fabulous hedge that there is.

        Let’s understand how big money thinks. The key for this “big money” is to find turn-key investments that are well-managed. They don’t want to remodel. They just want to right a check and immediately be in possession of stable cash flow. Why? Because they want to get paid while they wait out the inflation.

        Everything goes up due to inflation because the value of currency is dimished. They key for them and us is to convert cash into assets which inversely track inflation. This way they don’t loose any buying power. However, while there are a lot of assets this can be done with, only businesses and RE actually genrate income while we wait! This is why big money will, and already started to, come into RE in anticipation of inflation.

        This is what happened in the 80es during the times of high inflation. They pulled out of paper assets and flock ed to RE.

        So, why am I not a seller right now unless I get an absolute premium? Because I know that in a few years when inflation heats up, I’ll get much more – if I want to sell that is 🙂

        Now ask yourself this – would these people looking to park big cash want to buy 10 houses, or would they rather a 10-unit building? They don’t want to do flips – too much risk. The 10-unit, with well-established, seasoned NOI, and kept-up structure is what they will want. This is exactly what I want to own for this reason. Furthermore, even if I never sell it, the 10-unit will be paid off in 20 years just the same as a little house, but there will be a heck of a lot more CF – it’s not whether I win; it’s which way will I win first. Just the way I like it…:)

        Thank you for your comment, and good luck

  2. Great job putting in perspective and you’re systematic approach to rating’s. Definitely has me rethinking 2-4-plexes may make more sense.

    When you say “Fannie/Freddie salable note” where do you find those multi-unit properties? Homepath?

    • Thank you Terry,

      When I say Fannie/Freddie note I am referring to the government-sponsored enterprises Fannie Mae and Freddie Mac. They operate in the secondary securitization market and provide qualifying guidelines, among other things, to the originators. They will only extend financing to 4-unit or smaller properties. Larger and commercial properties have to be financed with a commercial note.

      Finding a property is an entirely separate conversation all together…

  3. Ben, your analysis is good except it should be pointed out that population and economy determines what’s best in that area to invest in. Small cities SFR are your best bet as in larger cities multi-units should do better over all. Since I don’t like high turn over’s, I stick with SFR scattered around different parts of the town. Owning an array of homes, having one vacant doesn’t hurt my profits. I’ve owned both SFR and multi-units and found out that I was spending more time (80%) with muti-units than SFR (20%) in taking care of them as I do most of my own maintenance.

    Appreciation on a SFR one can add amenities to increase its value while on muti-units raising the rents will do the same. In short, I rather deal with little headaches then one big one if something goes sour.

    • Jim,

      I couldn’t agree more about what it takes to create forced appreciation. In fact, next week’s article deals with exactly that! You are ahead of me – great minds think alike…

      I prefer multi, and my vacancy is under 2%. There are a lot more exapandabulity opportunites in multi as opposed to SFR in my view. But, to each his own.

      Thanks Jim

  4. karen rittenhouse

    Hi Ben:

    I’m a single family kinda gal. Your comment, “when vacant the SFR really takes a bite out of the cash flow, because while there is no income being produced, the expenses still have to be met. A multi-family building, on the other hand, by definition provides built-in diversification of income that is clearly not possible with SFR, which in my opinion offsets the potential higher vacancy rate.”

    I consider my SFRs the way you describe multi-family – built in diversification of income. When one property is vacant, the others are still functioning to cover our costs.

    Statistics are showing that SFRs are now more desirable than multi-families. Woohoo for those of us who have them! And, in our area (the micro-analysis you point out) SFRs are appreciating much better than multi-families. As @JimPratt mentioned, a bigger city might be better for multi-families, not so here.

    Thanks for the thought provoking post.

  5. Mathieu Gauthier on

    Ben, as a real estate investor, It is no secret that we are always trying to stay in front of the wave.

    We have recently changed our investment strategy, from SFR to multi family, for the following reasons:

    1) multiplication effect: in a 70 unit complex, your repositioning, or added value efforts, in common areas of a complex, will enable you to improve your NOI per unit, 70 times.

    2) going through due diligence is a time consuming affair: we would rather buy a 61 unit complex, and have to go through dd once, than 61 times. We have a 61 unit under contract in DFW, and another 70 unit coming up. I can only imagine trying to close 131 SFR. It would be done in one year, or quicker, by cutting corners.

    3) the business of buying-and-renting houses has, over the last 2 years, been transformed from a mom-and-pop type of investment, to being one of the hottest investments on Wall Street. Players like the Blackstone Group, are changing the game. Yes, you can obviously still find deals on SFR’s, but a larger share of the existing inventory is being set aside for these types of buyers.

    So, we will keep pursuing opportunities, using this investment strategy, until the market throws us another curveball. The day when all of these new wall street type players realize and understand the multifamily potential, we will have moved on to commercial deals (ha-ha).

    Mathieu Gauthier
    Redwood Valley Capital, LLLP

    • Mathieu,

      I disagree with your assessment of why groups such as Blackstone are buying SFR. The reasons they are doing this is simply supply side economics. They have the ability to purchase volumes and can essentially set their own prices for a portfolio of properties. In doing so they can force taxpayers who currently own the insurance on these properties to take a serious bath. Since neither the banks or the government owned entities want to deal with the physical properties they will fire sale large blocks off. This is why you are seeing huge property value increases in places such as AZ, CA ect. ect. The institutional investors are buying their own equity increases with out doing any augmentation to the properties.

  6. I been spending ALOT of time looking at HUD/F-MAY/Foreclosed SFR past few months getting no where, as if the deals are gone! Looking for high growth areas now to build, multi-looks appealing so I don’t have to compete with the SFR market I am looking at now. Great blog/thread! Thx.

  7. Frank Oudheusden on

    I like SFH more for a couple reasons.

    1. Easier to get into.
    2. Easier to get out of.
    3. They are evaluated more emotionally than analytically which makes it easier to find a good deal and easier to sell at a higher price if you know what you’re doing.
    4. You can typically rent them faster, at a premium price compared to similar sized apartments in a MFH.
    5. You typically get better tenants and longer term tenants depending on location.
    6. You minimize the risk of one unit affecting another (IE. burst pipe, smells, loud music)

    Overall I see a large portfolio of them mitigating the risk of diversification while offering more liquidity and easier maintenance.

    I see the upside to both though. Nice article.


    • Thank you Frank. We all have our preferences at the end of the day. What makes sense to some, doesn’t to others. I started with SFR and I still have a few in my portfolio. They deffinitely have some advantages, but overall I am a multi man. Thank you 🙂

  8. Appreciation generally is lower with multis, the buyers are buying specifically as an investment and are looking hard at the actual / potential rental income, whereas a SFH buyer can fall in love with aspects of the house / location and pay a premium.

    • This is interesting. I specifically prefer multi because they are rational, which allows me to control forced appreciation – I have an article dealing with this very thing planned for about 3 weeks down the road; keep an eye out. I would be interested in your comments 🙂 Thanks for commenting

  9. Very good article…thank you! I am a single mom and I owner-occupy a triplex and I LOVE it! The two 2 bedrooms are more “house-like” as far as the size and the way the kitchens are configured (nice big kitchens). The 1 bdrm is a little small and more apt-like. I would definitely like to invest in more small multi-family and provide the same amenities as people have in a house (with a little less privacy by default, obviously) so that I can have quality tenants who are going to stay for awhile.

    As far as future invsting, what I’ve found is that the cost “per unit” is lower the more units you have. So this can increase your cashflow if you buy right, but the rents are a bit lower compared to a SFH. For me, that difference is offset because everybody pays their own gas and electric and I control the heat which is built into the rents. I hope to be able to split the heat up before I move out, but it is an expensive process (another downside vs. SF). As for maintenance, I have less items to maintain, for example…I have one roof, not three…granted, it is bigger, but one roof is easier to have maintained (and less expensive to replace) than three seperate roofs. And one heater…for now.

    I think that there are many ways to be successful in real estate investing. Find what works for you, based on your situation and comfort level and go for it! =)

  10. I been trying to learn my market and nitch, what/where to buy that first property. I’ve done a market analysis on the big city I live in and surrounding top growing cities in the burbs. Looked at a lot of inner city SFR’s as I said no smoking deals yet, so tonight and this weekend going to meet with agents/developers looking at building on a lots and/or developing some land.

    Been using ciy-data.com which seems pretty accurate, shows median “house or condo values” , income, population, etc……It shows “median gross rents” but that can be from SFR’s. Realtors seem to just know SFR’s as are majority of building restrictions too.

    Question is how to do a market analysis of multi-units? The data I have so far does not really show supply vs demand as I can see, so I will have to get that at location I guess. Is the area demand SFR or multi-unit will be my question. I would also think location for a multi, depending on # of units, will be different. For example, 2-4 units may be allowed and do well in residential not on busy highways, where a large multi may do well surrounded by restaurants/etc, on a busy highway. These areas I am looking at have land at both.

    • Terry P,

      You are likely not going to like my answer, but there is no magic to this – go look at the available apartments for rent. This will give you a sense of what things rent for, and what that includes in a way of utilities and amenities.

      Next, go talk to a good commercial lender – he/she should be able to tell you what the going CAP for buildings such as the ones and in those locations is. From here, you can begin to piece a lot of the puzzle together…NO MAJIC –I wouldn’t put my faith into anything other that my own personal eyes, ears, and brains! Good luck and thank you for reading

      • Ok, thanks, will do. I understand! I develop high tech designs from a clean sheet of paper for a living. It can look great on paper/computer, when the first prototype is built is when we really find out what we did right and wrong, and our brains, ears, eyes get to see what we created. I’m beginning to see the analogy to REI. 🙂

  11. Thanks for the article. I’ve also gone through a period of determining what investment type is best for me. I have some SFHs and MFHs, however I’ve been transitioning to commercial properties for the last couple years. The advantages with commercial properties for us are dependability and appreciation. The downfall like you mentioned is the need for a lot of cash on hand to wait out the long vacant times (we assume 1 year turnaround) and high cost of moving in a tenant (free months of rent and remodeling) and paying the realtor fees (which can be $3 per sq ft or higher). However, once you get a quality tenant in place, it’s the least stressful form of RE investing that I’ve done. Quality tenants with long leases are challenging but not too difficult to find if your lease rates are competitive. That’s why we buy buildings with 50% vacancies or less that cash flow now and can afford to lease the rest of the building for below market values. Once you fill the property, not only do you have 5+ years of dependable cash flow with annual rent increases but you’ve also gained appreciation on the building. If you’re a small investor like myself, my recommendation would be to find a market that is 30-45 minutes outside a large metro area. That’s where smaller investors can find the deals that the deep pockets aren’t looking for but you still have a fairly stable job market in the large city. However, like you mentioned, you have to know where your local market is going. You can lose a lot of money if you aren’t careful. We’ve found some great deals in Midwest downtown markets.

  12. James Buttitta on

    One issue I have with larger multi unit buildings is utility costs. In a lot of cases the landlord is paying for water/sewer (as well as garbage) as these ate not individually metered. Not so good on the bottom line for multi family.

  13. Great article. Love the information. For years, I have been wanting to invest in small apt builds, but have been putting it off or affraid to pull the trigger. A real estate agent that I am working with has suggested that I pruchase a small unit, with a residentail loan, with the INTENTION of living in it. What is you opinion on that?

    • Wave,

      Personally, I happen to think that this is the best agme in town. Money is almost free. You’ll live free and achieve CF if you do it right (3-4 units). The best financial move if you can convince your significant other 🙂

    • Wave,

      There are many other benefits to being an owner-occupant, including lower downpayment and possibly lower interest rates. If you buy 2 – 4 units, you can buy FHA. Also, in NJ owner-occupants get benefits that investment properties don’t have, such as a break on the registration/inspection fee and we are not subject to all of the discrimination laws (only the basic handful of them), although I follow all of them anyway just to be safe. I like being able to keep an eye on my property and my tenants. If I was paying for their electric though, I would get upset when they leave lights on, so seperate utilities is a must (for me)!

      • Kelly,

        I concur with everything you say. I have to tell you, though, that I sense quite a bit of passion for RE in you, and if you should chose to take the next step you will no longer be an owner occupant What do you think – are you up for it?

        • Ben,

          Thanks! Yes, I am very passionate about real estate investing. It’s amazing how fun it is to learn when you are passionate about something. It definitely took me by surprise when everything just clicked and I knew that this is what I was meant to do. I definitely want to buy more small multifamily properties. My original plan was to owner-occupy the next one or two and take advantage of all the benefits that come along with that (not the least of which being favorable lending terms). I’ve been in this one for 2-1/2 years, so plenty of time has passed (FHA wants you to live in your property for a certain amount of time or it can be considered mortgage fraud). I really like my apt so I’m not in a hurry to move. However, the real estate market is in a sweet spot right now and since it’s been 2-1/2 years, I am ITCHING to get another one! So I am trying to find a way to make this happen even though I don’t have enough money for the downpayment…through a partnership, or a money partner holding a note, owner financing, etc. I’m trying to get creative here so I am get on this boat before it leaves. My goal was 10 units within 5 years and then reevaluate at that time. I eventually want to retire part-time and manage my properties part-time (instead of a j.o.b.) and then maybe take it one step further when I get older and hire someone so I can sit back and sip soda on the beach.

          BTW, newbies, I am a single mom in my mid-thirties! IF I can do it, anyone can do it! Find a real estate investment group and start learning and networking. Read more online. Discover what niche makes sense for you. You can do it if you put your mind to it! =)

      • I have another question. If I buy a 3-4 unit building as an owner occupant, can i run the building like a business and write off all expenses as well as take an expense for depreciation?

        • Wave,

          You should be able to as far as I know. In a 4-plex, everything would be divided into 4 equal parts (3-plex into 3 parts), and you should be able to use ¾ for your business. Repairs to the units that are rented should be deductable against the business. If you have to replace the main water/sewer line or the main electrical service (of which there is 1 servicing the entire building), 3/4ths of the cost should be deductable. Make sure you talk to a qualified CPA.

          But, between cheap financing, low down-payment, and all of these deductions, this is a really good deal in my opinion. Then again, what do I know; I’m just a dumb landlord 🙂

  14. Thank you for laying this issue out in an interesting and enlightening fashion. You brought out the facts and considerations which led to conclusions that make sense. Once again – a very enlightening piece of blog real estate brought together by Ben.

  15. Jose Gonzalez on

    Hey Ben,
    I personally decided to buy SFs because they were extremely cheap and gave the same returns as multifamilys. In my market what I see is that SF are much more discounted, since they are foreclousures, motivated sellers or short sales. In the other hand, multifamilys are owned by investment groups, big real estate investors, Banks, etc. So when they have or want to sell a package, it appears that they have already calculated the numbers and focus mostly on CAP rates, so you can jump in to something that is safer but still has much less opportunity to add value to.
    In the other hand, I have seen great deals out there but in very rough neighborhoods, I see a lot of opportunity there and also in mobile home parks, have you seen the numbers? They just appear to be insane…
    Anyway I loved your article and I look foward to step into a nice size building complex to experience your points.
    Thank you a lot!

    • Jose,

      Thank you for your comment. I respectfully disagree with your premise that just because something is cheep it is good. Check out my article from a while back on the subject.

      I buy property for 2 reasons: https://www.biggerpockets.com/renewsblog/2013/02/19/tenants-trash-unit/

      1. Present Cash Flow
      2. Future Appreciation

      Present CF will buy my financial independence when it is large enough. However, the caveat is that this must be stable, reliable, and relatively low management CF. When I buy, I have this in mind.

      Future appreciation is going to allow me to either sell, which I am unlikely to do; or re-leverage the appreciated equity in order to buy more CF. Are those little houses in not so good areas going to do better in this respect, or is a solid 10-unit in a stable area?

      As far as forced appreciation, again I feel more comfortable with multi. Realize this, in a multi, by improving the NOI by $50/month you create $6,000 of value at 10 CAP. This offers a lot of expandability. I have an article planned for a few weeks from now dealing with those kinds of things.

      Either strategy obviously works. This is all about personal preference Jose. Thank you for your comment.

    • I don’t typically buy anything from wholesalers, but if the numbers work and are satisfactory to you then why not…Well, there are many reasons as to why not, but it can be done if that’s the direction you need to go in

  16. I have another question. What business structure should I use if I purchase a multi unit as a resident owner?? If I buy a multi unit as a resident owner, can I put the building in an LLC? How do I protect myself from personal liability?

    • Wave,

      You will not be able to finance this 4-plex with a vanilla Fannie/Freddie note if you take title in a corporate entity. The building has to be in your name, because these are residential mortgages. If you finance this with a commercial note then you can do whatever.

      Now, many people will tell you that you can buy the building in your name and transfer it into the LLC immediately. Beware, literal reading of the contract language will disclose that this will trigger the Due On Sale Claus (DOSC). While some banks will look the other way, others will not let you do this, and I would definitely not advise you to do this behind their back. This is unreasonable and you should be able to do this in a single member LLC, but…

      • You also can’t get a 30 year fixed commercial loan so my opinion is that putting a 1-4 unit into a commercial entity and getting a commercial loan isn’t worth it especially at today’s low rates. While banks aren’t triggering due on sale clauses now, when interest rates rise substantially from where they are now (and they will at some point over 30 years if you’re getting a 30 year fixed), I bet many will be triggering it. Just my opinion. You can get liability coverage with an umbrella policy or just increase your home owners insurance liability coverage. This is all just my opinion.

        • Greg,

          It’s good that you used the words “in my opinion” in your post. Opinions vary on this matter. For some, liability protection is paramount, for other higher cash flow levels. SOme of us would not take on a 30-year note if you put a gun to their head. They think it’s too long – I disagree. However, all of us have to make a choice relative to our comfort levels.

          Thank you for your thoughts

  17. I been doing more digging SFH vs duplex new construction. I’m gathering the build inventory is at an all time low, slowly creeping back up in 2013. Lot of folks seeking rentals, less new homes. Duplexes build and hold for at least five years, but SF will rent better with a 3 car, more privacy, and more square feet on the same lot, I’d have to buy a bigger lot for the same sq-ft. Over time the SFH will sell better, but the duplex will cash flow easier.

    I’m not sure how to read that, guess I need a more details (plans, market, profit) analysis to draw conclusions. Market right now hard to read especially for a noob. We have Spring Parade of Homes next weekend hardly any duplexes, mainly SFH’s.

    • Terry P,

      I wonder why you focus so much on new construction. In most localities, the cost of building is MUCH higher than buying existing. In Lima OH, for instance, you could buy a duplex which is 35-50 years old for $50,000/unit. To build that, even at $80 per square foot which is bare bones, you’d be looking at $75k minimum. The new units may rent for a few dollars more, but not enough to justify extra expense!

      You keep talking about the square footage as being a concern. You even mentioned 3 car garage SFR. Understand, you are responsible for the up-keep. 3 garages means 3 doors, 3 openers, 3 sets of sensors. An extra bath means an extra drain which will need cleaned out, an extra toilet, etc…Be careful – as a landlord you must align desirability and utility from the potential tenant’s point of view and from your own as the owner.

      Finally, I don’t ever buy anything that wouldn’t make sense to hold forever! All this talk about selling being part of the strategy – not in my world. I’ll sell anything for the right price, but I will never plan on it as anecessary component of the overall strategy – TOO RISKY because I can’t control the market to cooperate! Hope this helps and thank you for your comment.

  18. Ben, in the past 2 months I moved to KS sticks from San Diego, CA where building outside of in 100+F degree desert was not an option, more so the $ to build the same square 3X’s. I started by looking at existing HUD/Fannie May/ REO, hardly any muti’s here. Now builders are building them since the new “rent wave” vs low build margins . I’ve lived all over the USA, like Philly, PA, St. Louis, MO, 4 plexes every where! We have a GC reahab construction co for hire doing well, just no properties of our own yet. We can build on a whim too. Here I’m just not finding alot of existing or build profits yet. Decided to get our RE license, maybe not knowing, relying on agents to feed us accurate info, is part of the problem.

    I like the way you think, you raise some strong points. I don’t think that well yet, getting there. Just had different type of training. REI is a different mind set, takes time. Part of the problem may be my Engineering training is too detailed needing alot of facts to proceed. I dunno! S0 I’ll go gather data to suit myself. 🙂

    • Terry P,

      Engineering is very similar to investing in that the nature of the exercise is to receive a multitude of in-puts of information and to synthesis a solution. If you have entrepreneurial bones in your skeleton, your brain is already conditioned – just needs a marginal shift in thinking pattern. Let me know if I can help with anything else.


  19. Right Ben, my son didn’t want to follow dads engr foot steeps, he’s a senior in entrepreneurial business school, I focus on the details, he takes care of that other stuff whatever it’s called don’t ask me 🙂

  20. Tim Chasteen

    Great article Ben,

    I am a fellow Ohioan south of you in Oxford. My plan is to first buy a SFH in the West Clermont or Milford Exempted Village School District for the simplicity of the investor/landlord experience. Once my feet are wet and I have a better understanding of what I’m doing, I would eventually like to get into multi-units.

    I appreciate your comments throughout BP about which avenue to take in Real Estate. They helped solidify my belief that the buy-and-hold strategy is best.

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