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Visitor
Kingzilla
Posts: 6
Registered: ‎02-21-2013

Single vs Multi Family 500K CASH

Hi everyone,

 

I am a first time buyer looking for a place for my wife and a newborn, I have 500k in cash which I was looking for a 3bed 2bath SFH around 400k and purchase with cash.  Also combined income with my wife we are pre qualifed for 900k loan so my agent recommended a muti four plex or a duplex at around 900k with 25% down.  She says it's a better investment because of cash flow where's Single has none, but multi seems like a lot of work considering maintanence to tenant control and especially I don't understand how rent control could either break the landlord or save the landlord. I kind of understand the cap rate but I don't understand how to calculate the hours and labor rate I have to spend managing the property.  Especially I don't understand how the ROI is just barely making payments to mortage while living for free(?) in compromised living standards vs a single family.

 

I literally decided to take a break from looking for homes until I can fully understand what's a smarter investment.

 

What are the pros and cons of owning a Multi vs Single if I plan to live in it for a long time instead of flipping it.

 

Also it seems it's almost impossible to find a multi with 3 beds/2bath and a garage at a decent neighborhood for 900k these days.  Should I just keep waiting until the interest rate goes up so less buyers and more sellers and purchase a single home or jump in the wagon of low interest rate and buy a multi?  What am I missing here?

 

Thank you for taking your time reading this and I look forward to hear your opinions.

 

 

Trusted Contributor
Mortmain
Posts: 189
Registered: ‎10-29-2012

Re: Single vs Multi Family 500K CASH

I don't undetrstand why a Realtor would suggest this, unless you prompted them to. If they didn't, get a new Realtor. If you planted the seed, you need to ask yourself whether you want to be a landlord and limited privacy, or just a quiet little home? Multi's offer better cap rates then SFHs generally, but the rental game can be a nightmare. I use a very general rule of thumb of a rent ratio of 1. For every $100k invested I want $1k a month rent. Subtract 50% from gross rent for costs. That nets to about a 5% return. If you are living on the premises your tenants are more likely to behave, but it also means you're on 24 hour call. I'd buy your own home first, get a feel of what home ownership is like, and then branch out into an investment property if you feel so inclined.

Contributor
Alvin_M
Posts: 22
Registered: ‎10-04-2011
0

Re: Single vs Multi Family 500K CASH

What area are you looking in?

Visitor
Kingzilla
Posts: 6
Registered: ‎02-21-2013
0

Re: Single vs Multi Family 500K CASH

The agent is a highschool friend and she often talked about investing in multi units vs single family during casual conversations.  So, I guess it was natural for her to cover mulit family investment when I told her that I was interested in buying a home. 

 

My feeling is stonger towards single family but I wanted to see what others would do in my circumstance. Thanks for your input.

Visitor
Kingzilla
Posts: 6
Registered: ‎02-21-2013
0

Re: Single vs Multi Family 500K CASH

I am looking in Glendale since I grew up here as well as Eagle Rock

Trusted Contributor
Mortmain
Posts: 189
Registered: ‎10-29-2012

Re: Single vs Multi Family 500K CASH


Kingzilla wrote:

The agent is a highschool friend and she often talked about investing in multi units vs single family during casual conversations.  So, I guess it was natural for her to cover mulit family investment when I told her that I was interested in buying a home. 

 

My feeling is stonger towards single family but I wanted to see what others would do in my circumstance. Thanks for your input.


Sorry, I didn't mean to denegrate your friend. The multi's I looked at in areas like Silverlake didn't offer the kinds of returns I was looking for. Since they were mostly older buildings, deferred maintenance was going to be an issue and that can decimate margins. CA generally suffers higher home prices, so it's a challenge to make the numbers work on a pure yield basis. It's more of a flippers market IMO, and without an healthy uptick in prices not very attractive. If you held out long enough, you may be rewarded. There were some multi units I saw in South Central that are new, offered good returns, but we literally had to duck bullets and hide behind the house. If I was going to be investing again, I'd probably focus on Phoenix which has seen strong gains, but you will very likely be competing with other investors, and inventory is probably pretty tight. Chicago doesn't have such a big inventory problem.

 

I woudn't want to deter you if that is your goal, but the landord business can be a nightmare for the casual investor. One of my homes was broken into, and flooded by the next door neighbor just out of spite, and no other apparent reason. Another was trashed leaving me of $6.500 bill and no rent coming in for six months. I don't want to demonise it because in this investment enviroment choices are few, but go in expecting the worse, and you won't be surprised when/if things go bad.

 

Good luck!

Super Contributor
newatthis
Posts: 318
Registered: ‎03-28-2009
0

Re: Single vs Multi Family 500K CASH

I wonder if there is some sort of investment vehicle you can park your money in , have it pooled with others, and buy a selection of rental units in LA which is managed by a third party.  I have never understood the desire to be a landlord.

Contributor
arvinz
Posts: 28
Registered: ‎11-13-2011
0

Re: Single vs Multi Family 500K CASH

I believe an REIT or real estate stock is what you have described.

Trusted Contributor
Seneca
Posts: 186
Registered: ‎02-13-2012
0

Re: Single vs Multi Family 500K CASH

You're crazy to use your high-school friend as your agent.  She's crazy to agree to it.  Never mix business and friendship.  One or the other will suffer.

Visitor
Kingzilla
Posts: 6
Registered: ‎02-21-2013
0

Re: Single vs Multi Family 500K CASH

Hmmm, really? Our family has been using her service to purchase homes for my aunt and my cousins.  Never came across with any issues and hopefully it stays that way.