Managing a duplex vs. a 4 family

[Cwadda]

Hi Mustachians,

I'm gearing up and getting ready for my first property purchase. I've identified the two properties in question, one is a 2 family, the other is a 4 family. I'm 22 years old, my mother is a real estate investor and I've learned much of what I know from her.

Would you recommend going for the duplex or the 4 family for my first purchase? They're priced equally per unit, have good numbers, good neighborhoods, all of that legwork is done so I already know they both work. It's just a matter of economies of scale here.

I think this really comes down to managing and whether you'd advise getting 2 vs. 4 units to start out. Also, my financing is FHA 3.5% down owner occupied.

[Bobberth]

What is the local market like? In my market, the hierarchy of rentals from bottom to top is: Apartment building, 4 family, 2 family, SFH. So a duplex will draw in better tenants than an equivalent bed/bath in a 4 family.  There is something to be said for the same number of roofs but 2 more units though. I personally aim for higher tenant quality so I have all SFHs and duplexes.

Also if you are starting out, do you want to start out with 1 tenant to manage or 3?

[Cwadda]

The local market is more duplexes in the area. But this particular neighborhood is one of the best in town. I think this'd draw in better tenants more than a duplex in a not so good neighborhood.

I'm okay managing 3 tenants because it means covering my PITI completely. The same could not be said for a duplex.

[CowboyAndIndian]

I'm 22 years old, my mother is a real estate investor and I've learned much of what I know from her.

Is it just me or  are are they making younger mustachians today ;-)

Would you recommend going for the duplex or the 4 family for my first purchase? They're priced equally per unit, have good numbers, good neighborhoods, all of that legwork is done so I already know they both work. It's just a matter of economies of scale here.

I think this really comes down to managing and whether you'd advise getting 2 vs. 4 units to start out. Also, my financing is FHA 3.5% down owner occupied.

I would go with the 4-plex. Very minor increase in work in exchange for your free unit.

Since your mom is a real estate investor, use her connections (trades people etc.) to make sure that 4 plex is highly desirable. You will then have minimal vacancy rates (since area is so good).

[SuperMex]

4-plex is almost always better than a duplex. They will often break with one or even two vacancies this isn't true for the vast majority of duplexes.

[Cwadda]

4-plex is almost always better than a duplex. They will often break with one or even two vacancies this isn't true for the vast majority of duplexes.

Yes, the numbers show that even with 1 unit vacant, the 3 other rents cover the PITI in full, plus another $400.

I will start moving forward on the four family. It's going to take a bit of creative financing, but it should work.

Thank you everyone for the helpful responses.

[J Boogie]

Yes, definitely 4 plex if the area is good.

You might never have a chance to put 3.5% down on a 4 unit property again! take advantage.

[supomglol]

I would go for the 4-plex.  I wish there was some of those in my city, we only have probably 200-300 duplexes here (2 of which we own) and I wouldn't do another one. 

The economies of scale just arn't there with the duplex (or at least not in my city). 
The main advantages is that it only consumes 1 of our 10 allowable personal loans (yet yields 2 properties), and that there is a shared structure and roof. 
You still have multiple of everything else...  water heaters, HVAC, plumbing systems, etc.  The roof isn't really much of a bargain either because it is roughly 2x as big as a SFH. 
The big disadvantage is that you're locking yourself in with what are typically lower-quality tenants (more temporary minded, roomates, lower income, etc) than a SFH. 

Granted all of these gripes are specific to my market, where I've determined I can get roughly the same value in a SFH and attract better quality tenants at the same time, there's no use going for duplexes. 
however, if these were 4-unit buildings I could understand how the benefits could start to outweigh.  Sadly there are 0 of these type structures here for me to ever find out. 

[Landlady]

I agree with everyone that a four-plex would be the better route, but since you are living there I think you should also consider which one you'd rather live in. The only downside I see to the four-plex is that you'd lock up a bunch of your credit in that purchase which may make another real estate purchase harder down the road. For example, do you plan on buying another rental property or maybe a single family home if you want a family?
I also have an FHA on my duplex loan. Your loan will be assumable. That means if you want to sell down the road you may get a buyer who wants that low interest rate (assuming rates have raised) which makes your property desirable for buyers.
Try to avoid PMI by putting 20% down even if you're stretching financially for the four-plex.

[Cwadda]

I agree with everyone that a four-plex would be the better route, but since you are living there I think you should also consider which one you'd rather live in. The only downside I see to the four-plex is that you'd lock up a bunch of your credit in that purchase which may make another real estate purchase harder down the road. For example, do you plan on buying another rental property or maybe a single family home if you want a family?
I also have an FHA on my duplex loan. Your loan will be assumable. That means if you want to sell down the road you may get a buyer who wants that low interest rate (assuming rates have raised) which makes your property desirable for buyers.
Try to avoid PMI by putting 20% down even if you're stretching financially for the four-plex.

I am doing 3.5% down because the property is $350k. I'm not even close to the cash for 20% down. However my plan is pay down extra on the principal aggressively (an extra $600 per payment) and then refinance to get out of PMI.