{"id":5187,"date":"2024-02-22T02:17:49","date_gmt":"2024-02-22T02:17:49","guid":{"rendered":"https:\/\/frankbuysphilly.com\/more-units-doesnt-mean-more-money-why-a-single-family-home-can-beat-a-fourplex\/"},"modified":"2024-02-22T02:17:49","modified_gmt":"2024-02-22T02:17:49","slug":"more-units-doesnt-mean-more-money-why-a-single-family-home-can-beat-a-fourplex","status":"publish","type":"post","link":"https:\/\/frankbuysphilly.com\/more-units-doesnt-mean-more-money-why-a-single-family-home-can-beat-a-fourplex\/","title":{"rendered":"More Units Doesn\u2019t Mean More Money\u2014Why a Single-Family Home Can Beat a Fourplex"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button x-on:click=\"open = !open\" class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<p class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/p>\n<p><\/button><\/p>\n<\/section>\n<p><span data-preserver-spaces=\"true\">The notion that investing in\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/finding-multifamily-properties\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">multifamily<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0is always better than investing in single-family is false. The goal of real estate investing isn\u2019t to own a particular type of property but to secure a reliable income. The reliability of this income doesn\u2019t depend on the property type but on the\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/zillow-renter-survey-2023\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">tenant<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0who occupies the property.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">To show you what I mean, I will compare the financial performance of a typical fourplex in Las Vegas to the kinds of properties we\u2019ve targeted over 16 years.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Typical Las Vegas Fourplex Characteristics<\/span><\/h2>\n<p><em><span data-preserver-spaces=\"true\">Note: The property cost and rent came from averaging the 36 fourplexes for sale today (Jan. 31, 2024). The typical in-between tenant renovation cost came from property managers who specialize in multifamily properties.<\/span><\/em><\/p>\n<p><span data-preserver-spaces=\"true\">Almost all fourplexes in Las Vegas were built before 1986 and are located in distressed areas. The typical tenant stays less than one year, and the time to renovate and re-rent is three months. The typical cost for the in-between tenant renovation is $2,000.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The typical unit rent is $800 to $900 a month. The typical cost to buy a fourplex in reasonable condition is $650,000 to $700,000.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Assuming a one-year tenant stay, the unit is vacant three months out of every 15 months. Assuming a higher-end $900\/month rent:<\/span><\/p>\n<ul>\n<li><strong><span data-preserver-spaces=\"true\">Gross 10-year rent:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0$900 x 4 units x 12 months x 10 years = $432,000<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">Lost rent due to vacancy:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0Gross 10-year rent x (3 months vacant \/ 15 months) ? $86,400<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">Number of tenant turnovers per unit over 10 years:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a010 years \/ 15 months = 8 turnovers<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">The number of tenant turnovers over 10 years for the fourplex:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">8 turnovers x 4 units ? 32 turnovers<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">Renovation cost for 32 turnovers:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">$2,000\/turnover x 32 turnovers = $64,000<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">I will ignore all other costs to keep the example simple.<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">Net 10-year rent:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">$432,000 \u2013 $86,400 \u2013 $64,000 = $281,600<\/span><\/li>\n<\/ul>\n<div class=\"justify-center \" x-data=\"{ IabAdad_block_: popAd(['r720x90'], '1') }\" :class=\"IabAdad_block_.linkURL ? 'flex pt-8' : 'hidden'\">\n<a x-show=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.linkURL\" x-on:click=\"adClicked('https:\/\/www.biggerpockets.com\/blog\/why-multifamily-properties-are-not-always-better-than-single-family', IabAdad_block_.sponsor, IabAdad_block_.title, IabAdad_block_.id, 'blockAdClicked', 'blockAd', 'postContent')\" target=\"_blank\" x-init=\"&#10;      analytics.track('blockAdLoaded', {&#10;        referrer: 'https:\/\/www.biggerpockets.com\/blog\/why-multifamily-properties-are-not-always-better-than-single-family',&#10;        sponsor: IabAdad_block_.sponsor,&#10;        ad_title: IabAdad_block_.title,&#10;        ad_page_location: 'postContent'&#10;      })&#10;    \" x-intersect:enter.once=\"adViewed('https:\/\/www.biggerpockets.com\/blog\/why-multifamily-properties-are-not-always-better-than-single-family', IabAdad_block_.sponsor, IabAdad_block_.title, IabAdad_block_.id, 'blockAdViewed', 'blockAd', 'postContent')\" rel=\"noopener\"><\/p>\n<div class=\" hidden sm:block\">\n<img class=\"m-0\" :src=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.r720x90\" :alt=\"IabAdad_block_.r720x90Alt\"\/>\n<\/div>\n<div class=\"block sm:hidden\">\n<img class=\"m-0\" :src=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.r320x50\" :alt=\"IabAdad_block_.r320x50Alt\"\/>\n<\/div>\n<p><\/a>\n<\/div>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Our Single-Family Target Property Characteristics<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Out of our over 490 properties, the average tenant stays for more than five years. The typical in-between tenant renovation cost is $500. The time to renovate and re-rent is one month.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">For the property segment we target, $700,000 can get you two properties. The typical rent for such a property is $1,800-$1,900\/month.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Assuming an average $1,850\/month rent:<\/span><\/p>\n<ul>\n<li><strong><span data-preserver-spaces=\"true\">Gross 10-year rent:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0$1,850 x 2 units x 12 months x 10 years = $444,000<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">Lost rent due to vacancy:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0Gross 10-year rent x (1 month vacant \/ (5 years x 12 months)) ? $7,400<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">Number of tenant turnovers over 10 years for the 2 units:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">2 turnovers x 2 units = 4 turnovers<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">Renovation cost for 4 turnovers:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0? 4 turnovers x $500\/turnover = $2,000<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">I will ignore all other costs to keep the example simple.<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">Net 10-year rent:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0$444,000 \u2013 $7,400 \u2013 $2,000 = $434,600<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">This means the net rent from the Las Vegas fourplex over a 10-year period is significantly lower than that from two single-family homes. This is due to shorter tenant stays, longer vacancies, and higher turnover\/repair costs.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Other Considerations<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Here are some other factors to keep in mind.<\/span><\/p>\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Low income reliability<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">The tenant segment that occupies fourplexes in Las Vegas is near-minimum-wage workers. They are typically the first to be laid off and the last to be rehired during economic downturns.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">During the 2008 financial crash, many multifamily properties were vacant and boarded up. Many were foreclosed upon. However, our clients had zero decrease in rent and zero vacancies during the same period. The difference was due to the different tenant segments the properties attracted.<\/span><\/p>\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Limited rent growth<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Because near-minimum-wage workers occupy multifamily properties in Las Vegas, the rent is tied to the minimum wage, which is currently $12\/hour. So, you cannot increase the rent significantly unless the minimum wage increases.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">If you were to upgrade the units in an attempt to increase rents, it would not be effective. Individuals who can afford higher rents typically do not choose to live in distressed areas.<\/span><\/p>\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Inability to screen out bad tenants<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">The people who occupy multifamily homes in Las Vegas typically live cash-based lives. This means there is little financial history upon which to evaluate them for payment performance.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">According to one property manager, any financial history they have is likely to be bad. The screening process for cash-based tenants: \u201cIf they have two pay stubs and enough cash to pay one month\u2019s rent, they are in.\u201d<\/span><\/p>\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Leases mean little to cash-based tenants<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Minimum-wage workers tend to have few possessions, so if there is an issue, they put their possessions on the back of a pickup and go down the street to the next property.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">So, Multifamily or Single-Family?<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Should you buy multifamily over single-family? It depends on the tenant segment it attracts. The property type does not matter.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">My first investment property was a multifamily in\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/houston-real-estate-market\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Houston<\/span><\/a><span data-preserver-spaces=\"true\">. On paper, it was a cash cow. In reality, due to nonperforming tenants, evictions, damage, and other costs, I lost money every year. My cash cow was actually a money pit.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I next bought two fourplexes in a suburb of\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/atlanta-real-estate-market\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Atlanta<\/span><\/a><span data-preserver-spaces=\"true\">. They performed well, and there were few issues.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The difference was the tenant segments the properties attracted. The Houston property was a C (D?) class with near-minimum-wage cash-based tenants. The Atlanta properties were B+ class, and the tenant segment was credit-based and earned significantly more than minimum wage.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">The type of property is irrelevant. Choose one that attracts a tenant segment with a high concentration of reliable tenants. In Las Vegas, the properties that attract the tenant segment with the highest concentration of reliable people are single-family homes with specific characteristics.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Buy the type of property that helps you reach your financial\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/four-real-estate-investors-shared-their-2024-goals-with-us\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">goals<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><span data-preserver-spaces=\"true\"> Don\u2019t follow others\u2019 opinions.<\/span><\/p>\n<div id=\"visibility-group-block_64dd561cede13\" class=\"visibility-group  hidden\">\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block py-4    has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n<div class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 lg:w-1\/2 \">\n<main class=\"py-4\"><\/p>\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find an Agent in Minutes<\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:18px\">Match with an investor-friendly agent who can help you find, analyze, and close your next deal.<\/p>\n<p><\/main>\n<\/div>\n<div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n<img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Agent-Finder-Block-2.png\" alt=\"find an investment-friendly real estate agent\" title=\"More Units Doesn\u2019t Mean More Money\u2014Why a Single-Family Home Can Beat a Fourplex 2\"\/>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"wp-block-group is-layout-constrained wp-block-group-is-layout-constrained\">\n<div class=\"wp-block-group__inner-container\">\n<div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n<div class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 w-full \">\n<main class=\"py-4\"><\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n<p><\/main>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/why-multifamily-properties-are-not-always-better-than-single-family\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article The notion that investing in\u00a0multifamily\u00a0is always better than investing in single-family is false. The goal of real estate investing isn\u2019t to own a particular type of property but to secure a reliable income. The reliability of this income doesn\u2019t depend on the property type but on the\u00a0tenant\u00a0who occupies the property. To show [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":5188,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33,1],"tags":[],"_links":{"self":[{"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/posts\/5187"}],"collection":[{"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/comments?post=5187"}],"version-history":[{"count":0,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/posts\/5187\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/media\/5188"}],"wp:attachment":[{"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/media?parent=5187"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/categories?post=5187"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/tags?post=5187"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}