Author Topic: How do you determine the desirability of duplexes vs single family properties as  (Read 8396 times)

rawrawrawr

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How do you determine the desirability of duplexes vs single family properties as rental properties in a certain area? Do you just look at how many duplexes are in the area and look through online rental listings?

Another Reader

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Single family homes and duplexes are very different.  Duplexes are occupied by renters (unless an owner occupies one unit) and when you sell, it will be to another investor.  Single family homes are usually owner-occupied, and when you sell, it may be to an owner-user or an investor.  Rents and expenses are different.  Tenants are generally different.

Whether and how much you can cash flow either property type determines which one is the better investment.  Unless you want to bet on appreciation....

Daleth

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We prefer duplexes to SFR's because you're not entirely dependent on one tenant's rent. We bought one in 2011, renovated one side in about 2 weeks, rented it, then renovated the other side and rented that one about five weeks later. That puts the tenants on different schedules (their leases don't end at the same time) and reduces the risk that we'll ever have a completely empty house with no one paying us any rent.

As for desirability, as the second poster said, these are two different types of property that are desirable to different kinds of people. You just have to use common sense here. Like, who lives in what neighborhoods? If you're looking at a neighborhood that seems attractive to young professionals or grad students, then look for duplexes because such tenants just about never want more than 3BR, usually they want 2, and if you get a duplex with 4BR (2 on each side) you can rent it for more than a 4BR SFR.

arebelspy

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We prefer duplexes to SFR's because you're not entirely dependent on one tenant's rent.

This argument always seemed really silly to me.

It's only true if you're buying one investment property and then stopping.

People use that argument "oh, if you have a duplex and one person stops paying you get 50% of the rent.. with a house they stop paying you get 0%" ... okay, but with 5 houses and one stops paying, I get 80%.

The fact of the matter is yes, less units = a single vacancy is a higher percentage of your gross income. 

So why not just buy a 200 unit apartment building then?  If you're just buying one and stopping...

In any case, if you buy multiple SFRs you spread the risk of a vacancy the same as buying some duplexes, so the argument of a single vacancy hurting so much of your income has always seemed really silly to me.
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kyleaaa

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As I've always heard it, in general duplexes and quads tend to have better cash-on-cash yields and SFH's tend to appreciate a bit faster, so it depends on what you're after. I'm no RE expert, though. If it were me, I'd probably find it prudent to hold a few SFH's, a few duplexes, and maybe even a small apartment building or two. Mix it up.

MrMoneyPinch

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As I've always heard it, in general duplexes and quads tend to have better cash-on-cash yields and SFH's tend to appreciate a bit faster, so it depends on what you're after. I'm no RE expert, though. If it were me, I'd probably find it prudent to hold a few SFH's, a few duplexes, and maybe even a small apartment building or two. Mix it up.
Meh.  I prefer multi-unit because it reduces the hassle to go from one to the other. Helps me bundle maintenance runs.  In fact, my plan is pretty much to trade up when the time is right.  I now have a 6er and a 9er, next round will probably be selling one and getting something a little bigger, a 16-unit block or something like that.  If I ever win the lotto, a 200-unit tower would be niiiice :) I would need a few employees to run that, but I would not need a job anymore.
Anyway, SFR are also good if the price is right. And easier to build your skills up.

tryan

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I dumped all my multi families in favor of SF homes.  The multis had a huge PITA factor due to tenants bickering (who takes out the trash, who left the mess in the yard, PARKING, shovling ... noise)

The SF don't cashflow as well but the tenants stay ALOT longer .... make the home thier own.  This keeps the PITA factor minimal

arebelspy

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Helps me bundle maintenance runs.

I never understood this argument.

What, do you put off maintenance until a second thing in another unit breaks?  When my tenants call in a problem, I get it fixed in less than a day.  Do you just coincidentally have things break in separate units at the same time?

I mean sure, when doing your routine checks/preventative maintenance you can do it all at the same time, but that's the exception, so the idea of "grouping together maintenance" seems silly to me.  "Oh your A/C broke?  Well as soon as your neighbor's water heater goes out, we'll come over and fix it.  It's about 8 years old, so we expect it to go any time now."
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tryan

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Quote
I get it fixed in less than a day


That has always been my policy.  Keep 'em happy!

totoro

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You need to run the numbers.  Do spreadsheets for both.  Find similar properties online in the same area to estimate market rents.

I own multi-family properties. They make more money for me than a SFH would in my area.  One makes even more because it is a vacation rental in the summer.

I would worry less about property type than condition and rental value vs. expense.  There is a market for multi-family just like there is for SFHs.

Hamster

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Where I live it is very difficult to get a single family residence that will cash-flow. So, multi-family is the only realistic option since I'm not interested in landlording from a distance or buying an SFR just to bet on appreciation. I briefly entertained the idea of getting something in Vegas or Phoenix to landlord remotely, but that ship had pretty much sailed by then.

I'm strongly considering cashing out on one duplex and mulling over the idea of using the gains to buy a distressed property to fix/flip. I'd make sure it's something I could hold and rent as a plan B if the flip doesn't work out... We'll see.

arebelspy

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I briefly entertained the idea of getting something in Vegas or Phoenix to landlord remotely, but that ship had pretty much sailed by then.


...and it's sailed everywhere?

I'm looking at selling in Vegas to buy elsewhere and landlord remotely.

Why did you give up on your plan because it would no longer work (apparently) in two cities out of the whole world?

I'd personally have never considered Phoenix anyways...
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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Hamster

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I briefly entertained the idea of getting something in Vegas or Phoenix to landlord remotely, but that ship had pretty much sailed by then.
...and it's sailed everywhere?

I'm looking at selling in Vegas to buy elsewhere and landlord remotely.

Why did you give up on your plan because it would no longer work (apparently) in two cities out of the whole world?

I'd personally have never considered Phoenix anyways...
I'm sure there are deals to be had in many other places. I just don't feel I have the time, specific market knowledge, or energy to investigate and purchase/manage properties remotely. Las Vegas and Phoenix were appealing because they are both places where I have family/friend connections and easy transportation options, as well as favorable markets when we were considering. And they are sunny in the winter! In the end, we just decided that their markets weren't as good as they had been, and we decided to stay local.

I think I can make better informed decisions in my local market which I understand much better. My wife is an agent, meaning cost savings on transactions in our region and inside knowledge. I can do many renovations myself if we are local, and I know several contractors I trust for items I'm not comfortable with. That part is a hobby which I learn from and gives me a sense of accomplishement. And it's very profitable.

As an example, we (along with a couple of friends) purchased/renovated a duplex in a nearby city 2 years ago. It cost us a total of $100k for downpayment, transaction costs and renovation. We have been renting it out cashflow positive at about 8% net return on that $100k after expenses (but not meeting the 1% rule, FWIW). Selling it now we expect $60-70k in profit (pre-cap gains and depreciation recapture) on the sale. That's 30-35% per year (not including rent earned) in a market that wasn't that desirable compared to many other parts of the country. But we made it work because we put together a great deal based on local knowledge/ connections/ sweat equity. I'm counting my chickens a bit before they hatch... but we're planning to sell and use the profit to finance another purchase.

arebelspy

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That's awesome, and absolutely what you should do.

Knowledge of the market is paramount, and boots on the ground is key.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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Daleth

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Where I live it is very difficult to get a single family residence that will cash-flow. So, multi-family is the only realistic option...

Yeah, that's the other thing about multis. All other things being equal, you generally can't rent a 4BR house for as much as you could rent two 2BR apartments. I think of rent in terms of number of bedrooms ("how much can I get per bedroom"), and there are diminishing returns as the number of bedrooms increases. The reason is that while you're generally renting a 2BR to one or two adults, you're also generally renting a 4BR house to one or two adults--the other rooms are for kids, and there's only so much more that one or two working adults can afford (particularly when you factor in the higher utility costs for the larger place). And even if you're renting the 4BR to a bunch of students, such that every bedroom is occupied by a person who's paying rent themselves, they're usually not going to pay as much for a room in a shared house as they would for a room in their own apartment.

Case in point: I have two 2BR apartments renting for $775/mo, and a friend of mine has a 3BR house like two blocks away that is only renting for $900.