I was watching this guy on YouTube from Cleveland trying to sell a duplex. He was explaining why a duplex is so much better than a single family and how you need to buy this one. It will cashflow so much. Only one roof. 2 sources of income.
He was really hyping it up, and while I was watching I did what I usually do and started poking holes in his sales pitch.
It is one roof with two units, true. However, it’s all relative. The roof is two times the size, and twice as expensive as a small single family home. You have two units under one roof, yes, but you also have twice the expenses, and twice the amount of risk. He failed to mention this or any logic what so ever. I immediately knew this guy didn’t have real investment experience, or he’s just another fake guru.
I’m going to break down the difference in residential property between 1,2,3, and 4 unit investments.
Single Family Home-SFH
This is the obvious home to picture. 2-3 beds 1.5 baths maybe a garage. Has either a basement or a crawlspace. Usually a yard to maintain, which should be the tenant’s responsibility, as well as the water bill. However, if it is the tenants responsibility, and they leave without paying the bill the city could hold you responsible. Even if it’s in the lease and the tenants name is on the bill with the city. Depending on the city, they can put a lien on your house for unpaid water bills. Make sure to add in the lease that security deposits will not be returned if there is a water bill to pay.
These houses should be simple to maintain and straight forward. If there’s a repair or upgrade it shouldn’t be too expensive or difficult for a maintenance man to get in there and work. With these SFH I have had young friends live there, young couples, old ladies, middle aged couples. In my experience usually, I see less 20 somethings rent a full single family home. It’s not always for sure but most of the time I rent to people that are older and want the benefits of not sharing a building with other people, the quietness and the ability to start a garden in the yard.
This building may be a side to side or an up and down duplex. When I’m buying multi families I like to have the units all equal in size and layout. That way I can have a similar tenant in each unit and know the layout of each unit and just copy any repairs or improvements on each floor. With a duplex or any multi family property, you have the ability to live in one side and rent out the other. With a duplex the rent will help you pay most of the monthly expenses, but probably not quite cover everything. There are duplexes with a 2 bed on the first floor and a converted attic on the top. This isn’t necessarily bad, but you could end up with a young married couple downstairs and a single guy upstairs that’s paying half the amount in rent and is in party mode. This will lead to many noise complaints and lower tenant retention. However this issue can be solved my having a good management co that screens tenants properly.
Keep in mind a duplex is twice the number of windows, 2 furnaces, 2 electric boxes, twice the amount of plumbing fixtures and pipes. An example of a plumbing issue that happened to me was on the top floor of my duplex there was a leaky pipe in the wall that went down 3 floors to the basement. My plumbers had to pull the entire pipe out which meant cutting the walls in the lower level and removing the old galvanized steel pipes and replacing with PEX.
Sometimes they may have 1-2 driveways and more or less lawn to maintain. One of the duplexes I own doesn’t have a lawn at all, so no grass bill in the summer. With a duplex or any multi the water might come on the same bill, this will be landlords responsibility. Grass and snow will also be landlords. The chances of 2 tenants hiring a law co and splitting the bill are 0. If one tenant promises to do the grass/snow in exchange for lower rent, the other will get jealous that he’s paying more than the other guy, and there will always be an excuse not to cut it every week.
So, it’s two sources of income but also twice the risk and liabilities and expenses. And with the water and lawn in landlords name it could be more monthly expenses than 2 SFH. Keep all these considerations in mind when buying a Multi.
Usually these are similar to the duplexes but there’s an attic or basement converted into a unit. These are usually smaller units than the other 2, and will receive less rent. Like I stated before there could be different types of tenants in the smaller unit than the other two. This isn’t always bad, just be aware of this. The 3rd unit, lets use the example of a converted basement. If you are doing the conversion or it was already done, you must check with the city and make sure it is a legal unit. If a tenant is upset with you and finds out his unit is not to code, there could be a lawsuit or withholding of rent. So check before you buy! This unit could be perfect for an Air BNB rental. As long as it doesn’t disrupt the other tenants. Or even better the landlord lives there and you collect rent from the 2 main units.
This will be a larger building and preferably all 4 units are the same. Again, with all multi families you can live in one unit and rent out the others. This will have 4x the moving parts, so remember 4 furnaces, pluming and electrical boxes. When I bought my quad, there was 5 electrical boxes. One for the hallway lights that the landlord paid. Since it was just connected to a couple lights, when I rewired the house I just removed that 5th box and ran them equally through the tenants service. It’s so small of an increase it won’t make any difference.
My quad as an example, there is a huge unused attic and a huge basement. With a lot of work, and city inspections, I could probably add 1-2 more livable units. If I do this the building will technically be 5 units, which is considered commercial property. If I sell it, the new owner will have to get approved for a commercial loan. Which will lower my potential buyers pool drastically.
The answer of which one should you buy is the type of house that makes sense for your money and your investment. Many fake internet gurus say you have to buy multi families or you have to buy 32 unit buildings. It doesn’t matter, as long as they are sound cash flowing investments. I own SFH, duplexes and a quad, as well as condos. I buy when I see value and the ability to cash flow. So don’t let anyone tell you what you have to buy, do what’s best for you and what makes sense financially.