Episode Transcript
[00:00:00] Speaker A: Hey everybody, you're kicking it with, kicking it with, kicking it with the home.
Hey everybody, you're kicking it with the Homeboys and the Homeboys podcast. And today we've got a topic that is discussed all the time amongst the investment community.
Single family versus multifamily. Which route should you take? What are the positives and negatives of both? I, I can't wait to talk about this topic because it's something that we get all the time when we're out on the speaking circuit. But before that, as always, I'm here with my handsome co host, Mr. Scott Adams. What up, player?
[00:00:43] Speaker B: It's good to be here with you, my friend. I'm. I'm headed to Puerto Rico for the.
[00:00:48] Speaker A: Puerto Rico.
[00:00:49] Speaker B: Yeah, with good.
[00:00:50] Speaker A: That a terrible. Was that awful?
[00:00:52] Speaker B: I, I won't even expect it because I, I think I'd sound Irish.
[00:00:55] Speaker A: I don't know. It's fun to say Puerto Rico.
[00:00:57] Speaker B: Oh, that, that one was bad.
[00:00:58] Speaker A: Rico.
[00:01:00] Speaker B: I'm glad you're entertain.
[00:01:02] Speaker A: Yeah, okay.
[00:01:03] Speaker B: But, but it's going to be good because I'm going with the real estate guys, which are the OGs in our world of, of real estate education and, and you know, amazing talk show host and really knows real estate. And I know what my number one question is going to be while I'm there at this conference speaking is single family versus multifamily. So this is a timely topic because I know I'm about to be asked it a hundred times.
[00:01:30] Speaker A: Yeah, I kind of alluded to it in the, for the longest time whenever we would speak at conferences, we'd get off the stage and the biggest question we would always get is, do you guys have any duplexes?
And people would always be really referencing existing duplexes, not new duplexes at that time. We're going back 15 years and it was interesting because you and I would poo poo on it a lot. And I know markets change, but you know, at that time the only existing duplexes that were available in the Indianapolis area were in bad air in bad neighborhoods. And you know, we would try to try to explain that to people, but you know, the market has changed a lot and I feel like, you know, our answers have changed a lot from 15 years ago. But it is a topic that is very deep. We could talk about this for several hours and we don't have that much time today. But it is something that I am very passionate about and looking forward to explaining the positives and negatives of both.
[00:02:45] Speaker B: Sure. Well, I think we should Start by just talking about the differences between the two is a great place to start. And there's a lot of folks out there that think that most investors should start with the single family. And then when you get bigger and get experience, you. You automatically should move into the multifamily world. And, and there's some truth to that, but you and I are examples of that not always being. Being true because we own everything from big apartment complexes on down to single family, and we continue to add single family. So it. Single family is not just for the new investor.
That's one idea that kind of floats out there, is that you start with single family and then you move on from it. My argument has always been that single family works all along the way.
[00:03:33] Speaker A: It does. And I think that it's important to kind of start out.
Let's stay on the single family topic for a second.
You know, the positive that I see with single family, one, it's a little bit easier to attain because a lot of time you're going to have a lower entry price. If you have a very low entry price on a duplex, be careful because it's probably a duplex that you don't want, probably an area you don't want, but it's going to be a little cheaper most of the time. But the one thing that I see in single family over my career is the length of tenant stay generally is going to be longer on a single family if you're looking at a relatively large sample size. And the reason why I say that is because there's a lot of people that move into a single family home and they look at it as their own, that it's like their home. And I don't think that you get that general feeling in multifamily as much because you are sharing a wall, you know, generally with someone in a duplex, triplex, fourplex, whatever, whatever the case, whatever the case may be. So, you know, in looking at a larger sample size. Yes. Generally you're going to see a longer tenant stay in single family.
[00:04:56] Speaker B: Yeah, that's for sure. There's a lot of assets that a single family has that a duplex doesn't have. Another great benefit of single family is it's they're easier to exit. You're able to sell them to an owner occupant as well as to an investor. So there's just more options on that side. Now, I don't want it to sound like we're coming down on multifamily because we are big believers in it. We build. We only build new multifamily. We don't build single family because the returns make more sense. We also have been selling a lot of duplexes in Indianapolis lately that we had stayed away from for really about 10 years. I was into them heavily about 10 years ago. I didn't like my experience with them.
I looked down my nose at people who were doing them as the market changed and I held onto my wrong values for a long time thinking that I just didn't like them and it was because I'd been burned a little bit. But the market did change. And the areas in Indianapolis where duplexes are available, those have changed.
[00:06:02] Speaker A: They have. Like I said, you know, it used to be you were picking from the worst of the worst areas of Indianapolis. And we have seen a shift in the marketplace where now that works.
And, you know, we actually, we actually own a couple. We've actually sold a couple here recently of existing duplexes that make a lot of sense. Another thing that I will say, just one caveat to watch out for on existing multifamily make sure the utilities are separated sometimes, especially if you see a one electric meter or one gas meter situation, I would avoid that at all costs because you're essentially creating a mutiny amongst your tenants there. Who pays for what.
This person's cranking their AC and running up the cost, and this other person is not. It's just a situation that can bring about a lot of problems. You'll see the one water meter in a lot of situations.
And that's something that, you know, that we, we're okay with. But any time gas and electric are part of the equation, you want that metered separately.
[00:07:14] Speaker B: Yeah, we could, we could have an entire show here about nightmare situations with duplexes and, and shared utilities and, and on top of it being a nightmare to manage, it's also a returns killer. It can absolutely kill your returns. We have a client who's got a, a six blacks that, you know, has, has slowly started to get off of paying all of the utilities for her tenants and has figured out a way to subdivide it. But it's literally the difference of over $150,000 in value in her. In her sixplex because of utilities. It's a way to kill the value of your property and your returns. So be, be cautious with that.
[00:07:57] Speaker A: And I say I don't care about the water, but, you know, one of our most viral short form clips was on a duplex that I used to own where a tenant was maliciously running the water in her sinks and showers to get back at me because she was being evicted. And yeah, that was an interesting.
[00:08:20] Speaker B: How much water did she use?
[00:08:22] Speaker A: The bills were like 1200amonth. And I did the math because whenever I called the utility company they were saying, well, if you have you checked for a water leak. And I did the math and said, well, the water usage would fill up 13 residential swimming pools. If it was a water leak, my house would be floating down the street.
But anyhow, the plumbing and everything was working great because it was just going right down the drain and literally my pocketbook as well. So there are meters that, that you can attach to water systems also that I would recommend, you know, putting on. That's a very extreme situation that you won't see. Make sure you check it out on, on social media. But, but yeah, it's, it's, it was a situation that was very costly. Yeah.
[00:09:12] Speaker B: Well, one of the benefits, now that we've, we've talked about some of the things to watch out for with duplexes is one of the benefits of duplexes is you really can get a little bit higher returns. Most of the time you're able to get a little bit of value there in terms of, especially when you build them as well or existing a little bit higher rents per purchase price. And we're seeing that right now with properties that we have available. I mean we've got duplexes right now, existing duplexes that have been completely, totally freshly remodeled. So they're like new and they're still producing almost 14% cash on cash returns. And we just don't see that with single family. We still see double digit returns as high as 10%, which is unbelievable, especially in today's interest rate environment that we're able to get those kinds of returns on single family. But you know, duplexes do have a little bit higher return.
[00:10:08] Speaker A: Why don't you talk a little bit about some of the, the newer product we're seeing not only in our market, but markets across the country where there are new opportunities to buy duplexes. Three Plexes, four Plexes.
And it's a very popular thing that we believe in.
Talk a little bit about that and the benefits from it.
[00:10:30] Speaker B: Yeah, so one of the great things about buying duplexes, triplexes and fourplexes is most folks out there, small Investors can get 10 Fannie Mae loans and the goal is to maximize over time the amount of real estate you own, which would mean, and the most that you can do on A Fannie Mae loan is a fourplex. So you can do a duplex, a triplex or a fourplex. So one of the main benefits of these duplexes, triplexes and fourplexes for investors is you could have 40 doors if you bought four. Four plex. 10. Four plexes, sorry. With your 10 Fannie Mae loans, I mean, who needs more than 40 doors? That's a lot of doors.
[00:11:08] Speaker A: So a lot of doors.
[00:11:09] Speaker B: It's a great way to multiply the amount of holdings that you have using conservative leverage. It's also a great way to diversify and to have multiple doors to offset multiple those months where you have a vacancy. One of the issues with single family homes is when it goes vacant, you don't have anything else bringing in money. With a duplex, you have one vacant, you got another one at least covering your mortgage, the triplex. Most likely you might even still be in the cash flow if, if you didn't leverage too heavily.
[00:11:38] Speaker A: That's a great point. And I didn't think you were going to go there and I was actually keyed up to talk about that, but you read my mind. It does provide, you know, a certain diversification, you know, for, for your investment. I mean, I think it's a great point. You know, you, you've got one vacant in a duplex, you've, you're, you're receiving, you know, rent on the other. And I think that's, that's very important. You know, single family, you know, your tenant moves out, there's no income coming in until that property is fixed back up, marketed and then re rented, which, which is part of the single family game. But you know, I'm a big believer in a mix. Obviously, you know, I, we, and I personally as well, we have a lot of rental properties and it's, it's a mix. We have some apartment buildings, we have some duplexes, we have a lot of single family. We believe in it all.
But you know, it still goes back to The Real Estate 101 location, location, location.
So, you know, no matter what you're buying, whether it be single family or multifamily, location is so very vital.
[00:12:49] Speaker B: It is. And one of the things that I like about the new construction multifamily is most of the time the operator, the developer is doing it in an area that has been heavily researched and they know that will work. It takes some of that guesswork out of there. Now you still have to do your research. You know, you have to, you have to know who you're Going to be working with who the developer is. But if you're looking at duplexes, triplexes and fourplexes anywhere across the nation, from a developer that's in this business that we're in most of the time, it's going to be in a good area, take some of that guesswork out because they know that there's a demand for that housing. Now that's not to say that a developer can't get that wrong once in a while, but it is a little bit safer on the location, location, location part. When you're buying in new developments, it takes some of that risk out a little bit. Now, are the returns as good as an existing duplex? Usually not. Usually not. However, it's a brand new product that's headache free for many years. I love the new build duplex stuff for duplex, triplex, fourplex, multifamily for so many reasons. But the main one is because it's kind of a set it and forget it, at least for Those first say 10 years.
[00:14:02] Speaker A: Because your maintenance is covered, comes with the builder's warranty and the tenants are
[00:14:06] Speaker B: fresh and the neighborhood is fresh and I don't know, it just makes for a really easy entry into the, into that property.
[00:14:14] Speaker A: I agree. If you're buying a, if you're buying a new product, yes, the location in most cases is going to be taken care of. But again, I will say on the existing, you know, multifamily, you got to be real careful because like whenever I first started in this business, the we talked about it earlier, the duplexes that were available in our town, I don't care if you were given them for free, I could not have made those work. You know, if you're in an area of high crime, an area where it's hard to find a good quality tenant, there's just no winners and your only exit point is to sell it to another sucker. So there are lots of places that work. We have a couple available right now. Scotty and I own a couple of those existing duplexes in other areas. But be very cautious on what you're buying.
[00:15:06] Speaker B: So I think people who are listening this probably are getting the message of well, what the heck should I buy? I'm a beginning investor. We like it all. What if I'm an experienced investor? We like it all. What if I'm a very seasoned investor? Should I still be buying single family? We believe in all of it. However, to shortcut that, the simple way to do it is to start with a single family. It's an easier entry point. It's a little bit more conservative in the cis, it's got a little bit lower risk profile, maybe not as high as returns, but on your first investment, we really believe in being conservative and being safe because the last thing you want is to chase returns and get burned in the process. So single family is a great way to start. It's a great way to keep going. But at some point it is very attractive to move into multifamily. So the traditional investor, a lot of them will start out with single family, move to a duplex, an existing duplex, one that's been rehabbed, and then down the road when they've got a little experience, they move into the brand new construction multifamily. Now, if you're in the position, the rare position where you're just getting started in real estate investing and you're in the position to be able to just buy multifamily brand new builds, there is nothing wrong with jumping straight into that. There's a reason why seasoned investors focus on moving up to that. It works great. It's, it's. The returns may not look as great on paper as the single family or existing duplexes, but I think seasoned investors have learned the lesson that they're, they're willing to give up a point or two in returns in order for the ease and the surety and the lower risk profile of a newer construction. So that's just my personal take on it. And I think, Clint, you agree kind of with that viewpoint.
[00:16:49] Speaker A: I do. And you know, again, for me it's all about diversification. You know, I believe in single family. I believe in multifamily. I think it's great to have a mix of both. So I'm not going to say no only do single family or no only do multifamily. It's just like your stock investment account. You don't want to put everything into, into Bitcoin with the fear of, of it going to zero. You never know. You want to be diversified in your stock portfolio. You also want to be diversified in your real estate portfolio.
[00:17:21] Speaker B: We've got a lot of this written out in a 10 page report that's free on our website. It's six six things to demand from any operator before you sign anything. So bas anything that you want to know before you start investing and the people that you're working with. It's got all kinds of great information, great tips. It's a free download. If you go to homeboys podcast.com and sign up, you get that free PDF. It's really powerful information. We highly recommend it. And if you want to check out the types of properties that Clint and I invest in and that our clients invest in or just want to see our available inventory, go to homeboys podcast.com we've got all of our available properties on there and you can get it's a great place to just learn just to watch what we're doing. And if you are interested in investing, it's a great place to start looking at properties and start getting some ideas comparing them to what else you might find out there in the market. And heck, I like looking at properties. It's kind of fun to look at those. And we if you want to, you can sign up too and get that email blast each week where Clinton I shoot out shoot a video and share info on a single property each week. Talk a little bit about pros and cons of every property. It's kind of fun to get our perspective on on the inventory as well. And if you want to talk to us directly, feel free to schedule a call and you can email us@sales homeboys podcast.com and we will get in touch with you.
[00:18:41] Speaker A: E. Scott Adams I'm Clint Wetherell. We're the Homeboys. That's our show. Till next time homies. Happy investing.
