As promised I’m bringing you an analysis of both a single family home and a multi-family home used as investment properties here in Olathe, Kansas.
The question presented to me was “isn’t it better to own two single family homes at $115,000 each instead of a duplex at $230,000?” Both have advantages/disadvantages over the other. See this January 14, 2006 posting about Multi-Family vs. Single Family.
So what I did was I found a duplex currently for sale in Olathe priced at about $187,000 and a single family home priced at $99,000. I used these two because they are currently for sale and have both been investment properties within the last five years so I know about what the rents are/should be.
The results? Well, I may have to tell you it’s a toss-up…or even that the SFH wins. Despite my normal belief. But keep in mind a few things when looking at the numbers below;
- Financing is the sticky wicket right now. It’s easier and less expensive to get financing on a SFH investment property right now than a multi-family home. And that is not to be discounted! Though when prices drop under $100,000 interest rates go back up a bit. Financing is just a drag…
- These two properties are in Olathe, Kansas. Not exactly the least expensive place to purchase investment property. Though you can always count on appreciation. (Yes, I used the “A” word.)
- The return numbers were a little lower than I expected. Rents have softened a bit in the last six months, financing has become more expensive and it seems every property needs a little more work.
- What is not shown is that the single family homes can be purchased at steep discounts making the marginal returns far better when the economy turns. Themultis are still over-valued.
- You can add a minimum of 50% to these return numbers by purchasing in Blue Springs, MO or other similar market areas.
Single Family Home
Purchase price would be $95,000 with $3,000 in closing for a total purchase cost of $98,000.
Total capital invested: $26,750
Total Operating Expenses: $3,425 (includes property management!)
Based on those numbers we actually have a NEGATIVE cash flow of about $287/yr.
Adding the Four Benefits of Real Estate Investing together and we end up with a Return on Investment WITHOUT Appreciation of about 4.0%. Aren’t you excited? Do your own property management and the return rate jumps to about 6.8%. These are not numbers to get too excited about. But I just checked my stock portfolio (such as it is) and I’m down 64.44% for the year. So I’ll take this over that any day. 🙂
Purchase price would be $180,000 with $4,000 in additional closing costs for a total purchase cost of $184,000.
Total capital invested: $49,000
Total Operating Expenses: $5,925 (includes property management)
Based on those numbers we have a cash flow before taxes of $93 for the year.
Again, taking the 4 Benefits without appreciation your return on investment looks to be 5.1%. Without property management you could bump that to 7.9%. Keep in mind that I am not finding the same kind of values in multi-family homes that I’m finding in single family homes.
So Single Family Homes win, right? Well, I’m leaning that way.