Analysis Time

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

boxing-gloves1The 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
GOI: $8,742
Total Operating Expenses: $3,425 (includes property management!)
NOI: $5,317

Based on those numbers we actually have a NEGATIVE cash flow of about $287/yr.

04_oscarAdding 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.  🙂

Multi-Family Home

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
GOI: $16,530
Total Operating Expenses: $5,925 (includes property management)
NOI: $10,605

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.

5 Comments

Filed under 4 Benefits of Real Estate Investing, Real Estate Investing

5 responses to “Analysis Time

  1. caleb

    Your conclusion doesn’t seem to match your analysis. It looks to me that the duplex beat the SFH in both cashflow AND ROI. Yet you conclude by leaning toward SFH?

  2. My conclusion was based on something that doesn’t show.

    “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. The multis are still over-valued.”

    I’m not finding multis at 10% discounts while I’m finding SFHs all day long at 10%-15% below acceptable, current market conditions.

  3. Would you purchase the multi-unit being over valued?

  4. This is a great time to buy Real Estate with all of the foreclosures. Never before have we had the wonderful opportunites to purchase Real Estate at such remarkable prices. However, the issue I see with the duplex is when its time to sell the numbers need to work due to a savy investor buying it.

  5. Right now I am finding the best buys in single family homes…

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