Single vs. Multi Family
Today, I’m going to answer a very common question among new real estate investors- “Where should I start?” A lot of people are trying to figure out right now what’s better for them- houses or apartment complexes- and if they choose to buy an apartment complex what size should they get?
These questions can be answered by a few quick guidelines. Right now lenders are expecting people to put 30% down, so let’s assume that and look at what you have to invest. Let’s say you have $100,000- you don’t want to use it all up on your down payment because then you’ll have nothing left for repairs, back up plans, or emergencies.
So let’s take a third and set it aside, and take two thirds at most for your investment. In this example that would be $60,000, which is going to be the down payment on your property. You could also buy 6 houses and put $10,000 down on each house. That’s a great idea if you have 6 good deals but that means you’ll have 6 mortgages, 6 deals to find, 6 closings, and 6 rents to collect at different locations.
Start Anywhere!
That $60,000 could also be used as a down payment on a multi family property, where everything would be in one place. Now you have one mortgage to pay and one closing. If you don’t have the money to do that, then start with what you can afford. If that means one little house, that’s great. You can start anywhere.
A big problem is when people have more money than that, and want to go buy a 50 unit complex. A 50 unit complex at roughly $20,000 a unit would be a million dollars. A third of that for a down payment would be $300,000. A lot of us don’t have the money to do that- but for those who do I suggest you get as large of a complex you can from the very beginning.
Due to economies of scale you’ll have a lot less headaches, because you’ll have a larger place with a manager and maintenance man on site. You’ll be a lot happier because economies of scale allows you to have a crew taking care of everything for you.
Remember, “different strokes for different folks.” What’s right for one person might not be right for the next, and you have to do what’s right for you.
If you’d like some more help getting started, feel free to contact me and we’ll help you get there.
{ 2 comments… read them below or add one }
A big problem is when people have more money than that, and want to go buy a 50 unit complex. A 50 unit complex at roughly $20,000 a unit would be a million dollars.
Hi there Brian!
Oops – I see that you pointed out an incomplete statement which needs to be clarified…
Here is a typical scenario that I am asked about:
Mr. Investor has enough money and the desire to purchase a 50 unit complex but asks if he should instead just get a few houses or a 4-plex. This is a big problem that arises out of fear. The reality that I have experienced is that smaller properties potentially consume more of the investor’s valuable personal time. Of course, management companies can be hired to handle even one single house, however, the cost-effectiveness of operating/managing properties tends to improve with more units.
If you were to choose between spending $300k toward purchasing a million dollar property (financing 70%) versus purchasing several houses or smaller multifamily deals… Go for the largest property that you can comfortably purchase. However, if all you can afford right now is one single family home, then great…go for it! Whatever the goal is – take action!
That’s it – I hope this helps! That’s the simple message that I was wanting to communicate but it came across a bit fragmented on the blog. Sorry – I’m a better investor than I am a blogger!
I see that you are rocking in the wholesale business – Congrats! I love wholesalers. I have purchased some of my best deals from wholesaler buddies and enjoy the win-win relationship that we have developed. If you ever stumple across some commercial deals that you want to wholesale in Texas feel free to let me know! I’d love to do business together in everyone’s highest and best interest.
Wishing you the best!
Chuy Terrazas