How do you pro’s feel about single-family vs multi-family homes for rental?
As a newbie, I can see pros and cons for both.
Land Baron,
I would strongly suggest starting with a few single family homes. Tenants in single family homes tend to be better behaved and will allow you to get accustomed to all of the tenant issues and nonsense. Single family houses are also a LOT easier to sell than multi-family and appreciate better than multis. This allows you to get out of the rental business if you find out that rentals are not for you, and that is the case for a LOT OF NEW LANDLORDS. As with most businesses, being a landlord is nothing like the idealized fantasy portrayed by the gurus. So far, I haven’t spent a single day on my luxury yacht or flying to Europe on my private jet for lunch.
I belileve that the main reason people want to start with multi’s is that they’re in a hurry to have a massive rental empire. While that may be a lofty goal, getting too big too fast is often a recipe for disaster.
Mike
Well said Mike.
Once you decide this is the business for you after trying your hand at a few SFHs, it’s okay to move up the ladder intelligently fast. That doesn’t mean after you’ve owned 3 SFHs to buy a 15,000,000 sq ft industrial park in Dubai. Going from SFHs to a few 4 plexes then from 4 plexes to 8 then to 16-32-64-128 isn’t unreasonable. If your comfortable doubling the size of your properties every year or so then go for it!
It’ll take a while before you can purchase your aircraft carrier of a yacht and show up to work in a chinook, but some people do it, so it’s possible.
Thanks for the input, fellas.
I asked about multi-family because I’ve seen a few duplexes and single-family homes with garage-apartments that looked interesting.
Thanks.
Land Baron,
With SFH you want to be careful you don’t pay too much. You never want to pay too much, but with SFH there is a much wider variation in prices. People who own there homes put personal touches that can make the price too high to rent out. So make sure to check your paper to see what the rent ranges are in your area. It might be that there aren’t any SFH that cash flow in your area. If you can cash flow a SFH in your area they are the easiest rent out, and the easiest to sell if you don’t like it.
There’s is absolutely no reason to not buy a multifamily for your first deal. What you want to buy is very best deal you can get your hands on. Focus less on whether is is a duplex or SFH and more on how good a deal it is.
I agree with most of your post Iron. However, Mike makes a good point about liquidating the assets in a hurry if you change your mind about rental properties. I used to have the same opinion as you, that it doesn’t matter what kind of property you buy first, just as long as it make money. But as you said , SFHs are “easiest to sell if you don’t like it”, I’d say that is a good reason to not dive right in on multi units your first time out.
I do think it matters what type of property you choose. I know several investors who only buy SFH. I just think it is far more important to be concerned with the quality of the property, and the price, then whether it is a SFH or Duplex. Buying a nice place at a great deal that cash flows is more important. So I guess the only point I wanted to make was that don’t go for ONLY SFH for your first deal, go for ONLY great deals.
If you want to know the Pros and Cons of SFH Vs. Multi-family, then think of it this way. SFH is better in every way you can name, except cash flow. So make a list of 10 things and SFH are better in every area except $cash flow$.
SFH Vs. Multi
Pros
-Easier to rent
-Easier to sell
-Better tenants
-Easier to finance
-A lot out there and located in every area
-Etc
Cons
-Lower cash flow
With that logic it could be assumed a beginner should go after a thousand room hotel if it’s a good deal. A lot of beginners can turn a perfectly good deal into a money pit of hell against all odds. I think buying a good deal is a given, a good SFH deal is probably the best place to see if this business is for you. A good multi fam deal for someone who will end up hating REI will be all it takes for them to cut their wrists and lay in the bath tub or OD on asprin. A SFH (good deal) atleast gives you an easier way out and the management won’t be overwhelming in the mean time. But once you know this business is for you, I see no point in growing your business at a snails pace and watching good multi fam deals pass you by.
I said that it does matter what type of property you purchased. But the point I was adding to the already points that were made was that whether you buy a SFH or Duplex is not as important as buying a great deal. Others posts already stated that a SFH is a great way to get into Real Estate.
As far as your “With that logic” comment, I’m not sure how you got that from what I wrote. I said nothing about new investors investing in commercial property.
F.Y.I Danny, it is more important to buy a great duplex then to buy a SFH. If a duplex comes along and it is a super deal then they should start with a super deal on a duplex as their first property.
I apologize Iron. I misread this sentence “I do think it matters what type of property you choose.” I also hope you didn’t interpret my “With that logic…” statement as anything confrontational. I meant it very literally such as; buying a good deal is the only thing that matters (no matter if you have the qualifications to handle the deal- i.e. a thousand unit hotel). I think we generally agree that SFHs should be atleast the first target when starting out, but if not so dissimilar type properties with hard to beat price tags appear, they shouldn’t be ignored.
I agree DannyTheGreat.
Thanks!!!
I did just that I bought 2 single families first befiore I bought my first multi. The singles rent out very fast as opposed to multis because everyone wants a house of their own. I got lucky with my multi family in the way I got a mother and daughter. Mother on the top floor and daughter on the bottom floor so in essence to them its like a single family just a big single family. Although multis cash flow better singles have less vacancies and are more valuable. Its definitely the way to go to get your feet wet. Good luck…
Thanks all. That’s what I like about this forum. Ask a question or bring up a topic, then sit back and learn.
a little off topic. iam looking to buy a home to rent. re agent tells me i souldnt tell the bank that i will be renting the home. why is this?
Because he wants you to lie to the bank. In all seriousness you get better rates and terms if youm get an owner occupied mortgage. Dont do it tell the truth. If you are going to live in it then its ok its owner occupied. If you are not going to live in it and will be renting it out then its a rental property.
The other problem with claiming its an owner occupied property is that you also have to lie to your insurance agent. You’ll have to tell them that its owner occuppied, even though its not. I’m not an insurance agent, but I would guess that if something bad happened like a fire, the insurance company may not want to pay because you lied on the insurance application.
Those types of “Major” lies will add even more stress onto an already stressful process.
Yes it is not something you can do. They will surely deny any claim you have if you lied about the occupancy and they find out. Find another realtor you dont want to deal with someone that wants you to lie about things like that.
ok thanks. but can i still get 100% loan if i buy the home as a investor?
dtrump,
You can still get 100% financing. You will need to have a decent credit score, 6 months PITI (Mortgage, tax and insurance), and good work history. Lots of us have done 100% financing with 1-4 unit non-owner occuppied properties.