Attention investors, would you recommend a 2 family or a 4 family? I have an investor curious...

  • July 19 2011 - Saint Louis
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Answers (5)

Become a live-in owner, and you want have to worry about mortgage and you will have fabulous tenants.

You have seen the pros and cons listed, mostly a tradeoff in 'chances of an issue coming up' with monthly income.

But no matter what you do, be a responsible investor. Too many people buy these buildings for money and forget that these are homes in a neighborhood, where people live. Just because somebody can pay you rent doesn't mean you have to rent to them. It is not illegal to not rent to unscrupulous characters. There are many grounds you can decide to deny renting. Take the tenant prospect interviews seriously because your decision affects the whole community. 

The punks who ruin safety in Chicago (and probably most cities) almost always, if not always, live in buildings run by absentee landlords. Please think carefully about who you allow to live in your future investment. It will protect you and the residents of that area.
  • July 25 2011
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It will all come down to patience for you.  The more people the more patient you have to be.  Also the larger the place the more repairs there most likely would be in the end.  If you have the time and patience for the 4 family home it could be a great investment but at the same time it could be a major headache.  I would say if you have never invested in either before go with the 2 family to get you feet wet and see what its like because ultimately once you buy it you will have work to do and if you don't know how it all goes I wouldn't get the 4 family one because I have seen people jump in to fast and get eaten alive. 
  • July 22 2011
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There are a lot of factors involved. Overhead is one. Compare a 2 family with a mortgage of $80k , taxes , sewer , water , trash , and insurance. This would be a wash with little to no cashflow.

Add 2 more units and you will see positive cashflow , this would be a struggle because you would have to keep %100 occupancy. This is sometimes hard to do. Just when the ball starts to roll , a tenant moves out.

A typical four family can generate $1600 a month in rent. This can be in a rough neighborhood.  Divide that in half for a 2 family. If you generate $800 a month or less on a 2 family you might as well go single family Section 8.

Remember the more units the more personalities to deal with or even worse they can get along , TOOO WELL!

There is no clear cut formula and many options and scenarios.
  • July 19 2011
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Profile picture for ExpectFirstClass
Kristen - that's a difficult question to answer without knowing more information.  The first question would be:

1. Does the property cash flow?

If the answer is "no" to either property, then don't buy it...not unless you know you can cut expenses or increase rent to make it profitable.

The other factors to consider are your CAP Rate, Cash-on-Cash Return, and Debt Service Ratio.  You can get a quick gauge on a property's potential profitability by calculating the Gross Rent Multiplier, which is the ratio of sales price to annual income before expenses.  The lower the number, the better.  It's a very rough gauge.

All else being equal, you want to "go big fast" when you can.  If you buy a 2-family and one unit is vacant, you've lost 50% of your income.  If you buy a 4-family and one unit is vacant, you've lost only 25% of your income...which may be easier to deal with.

Remember, cash flow is king.  Without cash flow, it won't matter.  Feel free to contact me if you need more detailed information.
  • July 19 2011
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I would recommend a 2-family of 5+ multi-family. 3 & 4 unit are difficult to get recent comps. If this is a cash purchase and the investor is seeking a long-term investment than this wouldn't matter.

Happy funding, Rudi
  • July 19 2011
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