You nailed the primary advantage to investing in 2-4 unit properties. An investor gets the benefits of owner-occ financing along with the benefits of multi-units. That’s why I ended up with 6 of ’em (and moved around a whole bunch!).
The per-unit cost of 2-4 unit properties is typically higher than it is for larger properties. At least part of this difference is because of the easier financing available for 2-4 unit properties. Once you get the 5th unit you are into commercial loans and, as I understand it, these loans typically require 35% downpayments. Since most people don’t have $$$ for large downpayments, there is more demand for multi-unit in the 2-4 unit arena.
inre “…you would have been better off …”: … and if wishes were fishes, we’d all …
Your profit analysis is correct given the condo market in spring-summer 2005. I believe the condo market peaked in August right after I came on the market. At that point, the four condos were worth more than the 4plex but I over-priced my units.
In today’s market, if I was serious about selling all four condos in a timely manner, I don’t believe I would end up being ahead. Remember, I’ve been watching the comps for my area very closely for almost a year now.
Also, four condo sales vs one 4plex sale means 4 times the potential liability in a very litigious society.
Here’s an interesting question: “what is multi-unit property worth in today’s market?”.
When I started buying in 1998 I was looking at bread-and-butter 4plexes priced at 9 or 10 times rents (ie, annual rents X 9 or 10). In 2000 I paid 11.5 X rents for a 4plex in Mission Beach and I thought I was paying too much. I stopped buying property when the rent multiplier started going over 14 or so because there was no way to make the numbers work. I started selling when the rent multiplier was in the high teens and low twenties. The last property I sold at 18 times rents. I’m currently on the market at about 22 X rents which reflects a premium for the condo map and the $200K remodel.
I think ultimately we will get back to rent multipliers in the 9-10 area (50-60% correction) and probably over-shoot on the way down – I will be bottom fishing anywhere below 10.
