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Today, let’s talk about Multi-Family Units vs Investing in a Single Family Home/ Town House as a rental property. I know there’s a lot of attraction to Multi-Family units, but it’s important to realize that there’s a lot of things to consider when picking one over the other.
Let’s first start off by establishing something about a Multi Family unit vs a Single Family/Town home. A single Family/ Town home’s market value is predominantly driven by other property value/ sales of other similar properties in the area/ neighborhood. This is why I’m very
..big on new construction properties and getting in on one during the early stages of when a builder begins developing a community. Builders are strategic with how they roll out new construction buildings and floor plans. They do so in batches, whether it be on a quarterly or
..Semi-Annual basis. Also with each batch comes a price increase, so if you’re a Home buyer in one of the earlier batches, by the time the roll out is completed your exact floor plan could be selling for $5K to $10K to $15K or even $20K more than what you purchased it for
..and just like that you’ve captured appreciation in your property (assuming the difference in age of the properties <= 2 years). But anyways back to the main topic, you get the point now? Value of single family and town homes is largely determined by the market/ property value
..of other similar properties in the area. Now what about Multi Family unit? Multi Family unit on the other hand is determined largely by the potential cash flow from the property and a key indicator used by pros in evaluating the value of a multi family unit is called the
..Market Gross Rent Multiplier - GRM ( https://trion-properties.com/education/articles/what-is-a-good-gross-rent-multiplier/ ). Simply put:
GRM = Value of a Multi family Unit/ Annual Gross Rent.
How the Market GRM is determined is by surveying a significant amount of Multi-Family unit in a particular neighborhood and determining the
GRM = Value of a Multi family Unit/ Annual Gross Rent.
How the Market GRM is determined is by surveying a significant amount of Multi-Family unit in a particular neighborhood and determining the
..Median GRM that can be used as a bench mark. Great news is platforms such as Zillow and others have in built software that can spit this number out for you, but as always I highly recommend reaching out to a trusted realtor in the area who have insights on these data and can
..help guide you. Let’s look at an example:
The Median GRM in a city like San Francisco (per Zillow) is 26.06, meaning that if I come across a Triplex that’s listed for $1.5M, all things considered, a good estimate for expected annual gross rent will be $57,560 approximately.
The Median GRM in a city like San Francisco (per Zillow) is 26.06, meaning that if I come across a Triplex that’s listed for $1.5M, all things considered, a good estimate for expected annual gross rent will be $57,560 approximately.
... if for whatever reason the annual gross rent currently being received form the investment opportunity is less than that, then the property is said to be over-valued. If it is more than that, then it’s said to be under-valued. Which leads me to assessing “Value” in both types
...of properties! Now the bad news is that as property value (Single Family and Town Homes) in a zip code rise, so does the rent/ cost of living and in turn the potential cash flow off Multi-Family units, which makes picking one over the other a difficult decision but ultimately
...it will depend specifically on the scenario. I will caution against rushing or always defaulting that Multi-Family Unit will be the better opportunity based on your investment time frame. For instance, if I want to buy and hold a property for 5 years in a fast growing
..zip-code in a city. Let’s say I stumble across a $220K property where with $35K worth of fixes (fixer-upper) I can essentially raise the Property value to $350K to match other similar homes in the neighborhood, so that’s an automatic $95K worth of equity! Let’s assume my
...cash flow is only $200-$300/ month. On the flip side let’s say we also have a Multi Family unit worth $350K and it’s GRM matches the Market GRM for the area of 12 which yields $29,167/ year or $2430.56 gross / month. From the outside looking in you night the tempted to jump on
..the Multi-Family unit solely based on cash flow, but for your investment timeline of 5 years, that may not be the smartest decision because the Multi Family unit has no in-built value, it’s neither under-valued nor over-valued. It’s valued at exact market rate, whereas the
..single family/town home deal yields you $95K in value from day 0, with some net green cash flow to spare still (remember you always want a positive cash flow on your properties regardless of type). In this case it might be worth taking a closer look and possibly considering the
..latter. Anyways hope you found this thread helpful! With that I’m signing out 
