Hi everybody - as I am looking for my first investment property I have a quick question - would you look for SFH, condos, or multi-family? My gut tells me that multi-family is better because instead of one rental I would start of with 2, 3 or 4 (depending on the number of units).
However I was reading Propertymanager’s book (I got it today - one day before the expected delivery date… :O) and he indicates that he would start with SFH and only move to multi-families after having accumulated few SFHs.
The conventional wisdom seems to be start with SFH for a few reasons:
You don’t know if you’ll like, be able to tolerate, or even be any good being a landlord.
Dealing with one tenant will be easier than dealing with several tenants.
If all else fails, you can probably unload the SFH much easier than a multi-unit because you can market the SFH to anyone. Only investors will be interested in the multi.
That being said, my wife and I started out the other way…bought a 6-unit building right off the bat. Here was my reasoning:
We bought it for the same price we could have bought a decent 3bd/1ba house in the area. A SFH like that would bring in about $500-550/mo rent. Our building was bringing in $675 with two vacancies. Yes you read that right; the rents were VERY low. The four tenants in the building were all long term tenants, all older, and had no kids at home. We immediately rehabbed the two vacant units and rented them for just below the market rent for our area. Word of mouth from our existing tenants meant we had two people ready to move in before we were even finished with the rehab. Cool, now we’re making money.
We figured the original tenants were there to stay because they’d been there so long and they couldn’t rent anywhere else for that cheap.
Turns out the previous owner (who was a Realtor and had been investing for many many years) never really spent any money or time there fixing things. One lady had a kitchen sink stopped up and had to dump her dishwater outside. We found out the sink had been clogged since 1990. We called a plumber and had an under sink sump system installed that pumps the water into a different drain line. Much more cost effective than trying to cut up the slab and find a collapsed pipe.
Anyhow, it has been an incredible learning experience, but it has worked out well so far. The tenants have been good to us and appreciate we take care of the place. I like knowing that even if I have a vacancy for a bit, I’m still making money off the place. There are pros & cons for each side, but I’m glad we started the way we did. We’re looking for more multis for now…
I would strongly suggest starting with a few SFHs for the reasons that Justin mentioned. While Justing is doing well with his property, most new investors don’t succeed and SFHs are a lot more forgiving.
Justin - this is exactly what we were thinking - we can jump start our business by buying a multi-family. However I understand what you and propertymanager are saying. I understand SFHs. I own one. I could even move into the property if my strategy failed.
I wish I had bought a duplex or 4plex when I was single and paying rent. That would’ve made more sense to me at that time. You could live (nearly) rent free and get some landlord experience. In my area, duplexes seem to have an equal value as SFH’s. They may be more in demand during the current economy. Many people are putting off buying a house until their economic confidence returns.