Lots of people make big profits in multi-unit. The concept makes a ton of sense. After all there is only one roof to fix and total vacancy is unlikely, to ease debt service concerns. I'm just a flyer like the rest of you but I will say among my rentals are two multi-family and they are not raining gold on me. The reasons that they are no more profitable than single family for me are that:
- Multi-unit homes tend to be in less desirable neighborhoods than similarly-priced single family homes
(Leading to lower quality schools, tenants, and appreciation upside)
- Multi-unit homes tent to attract renters of a lower caliber in my experience
(Mine have disproportionate "normal wear and tear" on turnover, higher turnover rates than single family, and generally more drama)
- Multi-unit homes are expensive right now as cap rates are decreasing nationally and there is no yield anywhere
- Significantly higher insurance costs
A smart buy on a stable, modern, single-family in an excellent neighborhood doesn't look as good on Excel or over beers, but after a few years somehow it holds its own against the churn and circus of multi family.
It's not the absolute rent income, multi blows everything else away, but for some reason stable, dual or high income, responsible young families tend toward single family, and how-did-that-stain-get-on-the-ceiling-johnson ends up in my multifamily.
Agree with much of the above, multi-family properties have their own pluses and minuses and are an opportunity to diversify your realestate portfolio depending on what your perspective goals and priorities are.
Some multiplexes are are the equivalent of buying into an income stream when it comes to their long term appreciation rate when purchased in areas, while others have a lower ROI rates but are still appreciating at a rate comparable to local SFRs in the desirable areas they're located. Those areas do exist, in today's market but you do have to look for them.
Insurance is expensive with any rental property, especially if you own in a high risk area (which unfortunately seems to be any place where there's water nearby... Not exactly avoidable as a Navy guy).
Wear and tear isn't always low with Single Family Residences. The worse case of tenant destruction my family personally experienced was a case where a tenant burnt down (and killed their 14yr old daughter in the fire) my parents would be retirement home while mom and dad were on their Mando PCS overseas pre-twilight tour (government gig).
Each person owes it to themselves to do their research before truly taking the plunge into realestate investing, just as they should with any other investment opportunity. Owning realestate can become an expensive hobby if one isn't careful.
Good Realtors and property managers are worth their weight in gold.
My personal thoughts/experience on realestate investing:
I initially bought when the market was strong and became a buy, hold it, and rent it type of person after the housing market bubble burst on the national level and I would had to have sold my house, car, dog and your firstborn child and then brought $100k to the bank to walk away from ownership of my townhouse if I wanted to get rid of it. The upside was that the place always stayed rented (literally from the day I decided to put it on the market for rent to right now I've never had a day where a tenant didn't occupy it).
When the market stopped dropping i started to resent the idea that I had spent no less than $60k on rent on other peoples properties with nothing to show for it, meanwhile I had my rental property that hadn't recovered to a market value where I could sell it and break compared to what I bought it for, but my stream of tenants built me $50k of equity in it through their payment of my mortgage over the years. I got the idea that I was going to buy again at my next duty station, researched the market heavily, decided on where I wanted to live, how much I needed to spend to get a place I liked to come home to, but the market rents for the neighborhood would cover the mortgage (because I've covered the difference between rental income and mortgage out of pocket before and that totally sucks). I searched until i found a turn key property meeting my criteria, turning down a couple of really nice project homes in phenomenal neighborhoods and nice houses in nice neighborhoods where rents wouldn't covert the mortgage. The place I'm in now will rent for my PITI and HOA total. I decided that I was willing to shell out a 10% property managers fee for an asset I spent zero dollars on acquiring during the purchase process, with the exception of the home
Inspection.
Several years ago Promotion tides shifted and an O-4 retirement looked like it wasn't going to happen based on the %s and I started looking for another way to generate passive income in retirement to offset the loss of that calculated income. I had a buddy whose family had experience with multi-family income properties in an urban environment and they spent a couple years scouring the country looking to buy another place to fit what they wanted. They happened to find a property in a place I was previously stationed and familiar with. I decided that what they said sounded good, but wanted to watch how it worked out for them for a while. It worked out so well they bought a second property later that year.
By the end of the first year of their ownership of the two properties, I sat down with him and he was kind enough to show me the #s of what they invested in the properties, rates of return, rent rolls, vacancy rates, delinquencies, repairs etc. and by this time there was a 3rd property up for sale in the complex so I flew down and checked it out and I ended up buying a 4th property from an estate with and partnered up a member of my family (Which could be a terrible idea for some people) who could actively participate in the management process for me while I was deployed.
Fast forward a couple years and I have a mix of single family residences and multi family units in my portfolio.
Is it always easy being a landlord? No.
Is it always fun? No.
Do you always have excess cash handy to make it rain? Yes, if you're a P-3 guy and you're on deployment. Otherwise, no.
Does it diversify your investment risk and exposure? Yes.
A financial advisor I used to work with was a champion of the idea that every person should have 3 income streams they plan on living off of later in life, so if one dries up there's still Money coming from somewhere else. You often see guys who retire from the military in their late 30s and early 40s as living examples of this in practice. I elected to make realestate one of those income streams for me.
