Two Du/tri-plexes Or One 5 Unit?
I have some money and am looking into buying some multi-unit properties. I have an option to copletely pay off a couple duplex/triplexes or completely pay off one 5-6 unit property. Besides the obvious cash flow implications, can anyone tell me pros and cons about either?
Is this for a 1031 exchange? If not why do you want to pay all cash for a property? If your credit is good, I would put as little down as possible on as many properties as possible, leaving some for reserves. If your credit is tough to get good loan terms, I would seek seller financing, again with as little down as possible. As for the type of property, I would get as many units under one roof as possible. I like to leverage OPM as much as possible.
why not buy 10 units and put 50% down? You're still in a great position, but have twice the write off and depreciation.
Are they 1 parcel or 2?
If they're 2 parcels (all things being equal) then the 2 and the 3 are going to be better for you bc they'll appraise as residential property rather than commercial. Also when you go to sell them your buyers can get residential financing (100%) rather than commercial (75%LTV). 5 plexes are tough to finance bc they're VERY small commercial deals typically. That said, you may be able to use that as a bargaining chip.
Benefits of the 5plex:
Econonies of Scales. ie, you have one color of paint instead of 2. One roof, one drive way, one lawn, etc. Easier and more cost effective to run. That said if the 2/3 are next to each other it minimizes this factor.
Great comments Hibby, how about 25% on 20 units?
Be stingy with your cash and leverage to the hilt is my motto =)
[addsig]
I guess I need as much cash flow as possible without jumping in over my head in property management. At least for the first two years while my wife takes time off and has another kid. I think after she goes back to work and we don't need the cash that much, we can take the cash out of those properties and buy more. Make sense?