Rental Investment: Multiunit or Single Family Home?

[Kairos]

Thinking about purchasing a rental property where I live (Portland, OR). Looking to spend about 700K. Around here that could buy duplex or triplex with about 3-4K month rental income or one fancier larger house with 2.5-3.5K monthly rental income. Multiunit=more maintenance and turnover, but providing more affordable housing appeals to me. Anyone else out there made this decision before? Pros or cons to each?

[Rich on Money]

I thought Portland, OR was a high cost of living area.  Have you looked at what your return on investment will be yet?  Have you applied the 1% rule?

The 1% rule - The house should rent for at least 1% of the acquisition price (purchase price + fixing up) to be a worthwhile rental property.  If a house is Portland costs $500,000, it needs to rent out for $5,000 a month to be a candidate as a rental.  Same with multi-family on a per unit basis. 

This is a simple formula, you do more complicated math later to figure out the actual expenses and actual ROI. 

Multi-unit seems to be more popular these days.  It's like a real estate "fad" that everyone is doing.  I personally own 20 single family homes in Alabama (low cost of living) that are doing.  I'm a real estate blogger.

[Neo]

Curious why you see multi as a fad? All the multis in my area have been around forever.

[waltworks]

The answer to your question is really easy!

You should not buy either. Period. They are both horrible investments by any of the usual rules of thumb and you'd *purely* be making an appreciation play.

-W

[PKate]

You will want to be careful as a first time landlord.   You may find you are not cut out to be a landlord and being able to afford to sell it or hire someone else to manage it should be factored in. 

If you buy a multi unit home in a neighborhood you want to stay in long term it can be a good way to have tenants cover your housing costs and a safer bet as a first time landlord.

My husband bought a 2 unit house as a fixer upper in the spring of 2005.   His original plan was to have it as a starter house and rent out the upstairs apartment and live cheap till he got married. Then I came into the picture.  We have since bought a single family home in a much quieter neighborhood but are still underwater on the old house so we can't sell it yet.  While it is cash flow positive there isn't enough profit to hire someone else to manage it for us.  If it hadn't been a 2 unit house we would be stuck living there.  We are planning on selling it once it is no longer underwater.

[Mother Fussbudget]

I'm with Walt.  Find another town, build a team there, and move forward. Portland & Seattle are both too expensive (HCOL) to make landlording pencil in.

I'm investing in Indianapolis - a town where your $700K could buy 10 houses that rent for between $750-900. They meet the 1% rule (almost impossible to do in the Pacific Northwest - PNW - at current housing valuations) in a stable up and coming metropolis (it's right there in the name!).

Read some posts about how to build a team in another town, and how to be a landlord for properties you've never seen:
Purchasing real estate you've never seen 1
Purchasing real estate you've never seen 2
www.biggerpockets.com/forums - do lots of research here

[frenchsquared]

How are you dealing with the property tax?
I felt Portland was likely the worst place in America to invest in rental income as the property tax often exceeds the mortgage payment?

[Capt j-rod]

I am in a LCOL and I own both types of properties. My multi-unit properties are mortgaged, my single family are paid for in full. The multiple units create some redundancy that almost never hangs me with a mortgage payment. The issue for me comes with selling the property. Multi units are only purchased by investors, single family are bought by families or investors. I have stopped buying the multi units and I am buying houses for now. If a multi showed up for a steal I would still grab it. They are money makers, but I plan my exit strategy as well as my current situation. Ultimately when I fully retire I will transition into farmland or commercial. Lower ROI, but more flexibility to travel.  In Oregon with a crazy tax structure and pricing? I really can't help you there.