What Type Of Investment Property To Buy? Single Family Home, Condo, or Multi-Unit

This post will discuss what type of investment property to buy in order to maximize investment returns. Buying rental properties today is one of my favorite investments because inflation is picking up as the economy reopens. Inflation whittles down the real cost of a mortgage while boosting the value of your real estate.

For years, I regretted buying a single family home in San Francisco instead of a multifamily property. If I bought a multifamily property instead, I could have generated more passive income if I had.

Even though the idea was to grow into our four-bedroom single family home, it felt wasteful during the meantime with only the two of us. So I finally decided to rent out the ground floor bedroom to a middle school teacher for below market rent. I've always had a soft spot for teachers, and it felt good helping someone who made less than $36,000 a year find a place in a good neighborhood within walking distance from work.

With the money I spent on buying the house in 2005, I could have bought a two-unit building with a 1,300 sqft, 2/1.5 apartment upstairs and a similar size 2/1.5 apartment downstairs. I could have lived in one unit and rented out the other unit for maximum efficiency and profits, perhaps to the tune of an extra $150,000 – $300,000 over 10 years.

Further, having smaller units would provide more flexibility to accept new job opportunities – like the large offer in NYC I turned down – because of my perception at the time that it would be easier to rent out a 2/1.5 condo vs. a 4/3.5 SFH.

Then I rented out my whole house and had a change of heart. This post will discuss what type of investment property to buy. The decision is based off your income, wealth, living needs, and outlook.

What Type Of Investment Property To Buy? Single Family Home, Condo, or Multi-Unit

The choices for investment property to buy include:

For most people, these type of physical properties are your only options. All three of these types of properties can get rented out.

Amazing Property Overlooking The Ocean
Buy property for lifestyle

Conventional wisdom says that if you can afford a single family home, buy a single family home because they tend to decline less in a correction and rise more in a bull market.

You have more opportunity to expand a single family home, whereas you're stuck with the footprint of a condo. If you cannot afford to buy a SFH, then buy a condo, co-op, or TIC.

For those who have a small family, or no family, and are looking for the greatest financial returns, buy a multi-unit property. The idea is that by splicing out your property, you can maximize rental income because there is a declining rental return on the number of bedrooms.

For example, a one bedroom apartment might rent for $3,500 in San Francisco, but a two bedroom apartment of similar quality isn't going to rent out for $7,000. The two bedroom apartment will probably rent out for $4,500 – $5,500. Meanwhile, a three bedroom apartment of similar quality will probably rent out for $6,500 – $7,500 instead of $3,500 X 3 = $10,500.

In other words, from a landlord's perspective, it may be best to own many smaller units in one building to earn as much money as possible. From a renter's perspective, you get most bang for your buck renting a larger unit with multiple roommates.

Everything sounds logical right? I thought so until I decided to maximize my passive income by renting out my house and purchasing a smaller house in 2014.

Here are the details of my SFH rental property:

Number of bedrooms: 4

Number of bathrooms: 3.5

Property type: single family home

Mortgage: $4,300 a month ($2,200 is principal, $2,100 is interest)

Property taxes: $1,600 a month

Insurance + Misc: $300 a month

Total Cost: ~$6,200 (~$4,100 net after deductions, and $1,900 after principal)

Rent: $8,700 a month

Number of tenants: 4

From a gross cash flow perspective, I would need to rent out the house for at least $6,200 a month to break even. From a net cash flow perspective after deducting mortgage interest and property taxes, I would need about $4,100 to break even.

And given $2,200 of the $4,300 mortgage pays down principal, I would need about $1,900 a month to completely run in place with a $2,200 principal pay down offset by a $2,200 cash flow loss every month.

Making It Through A Crisis With Investment Property

During the depths of the financial crisis, rent for my house was in the mid-$6,000 range. I know this because I was in cost-cutting mode and wanted to see how much I could get if I had to rent out my house and move back home to Hawaii. A Bank of America exec offered $6,500, which I ultimately turned down. There was no way I was selling any assets during the crisis if I didn't have to.

I never would have imagined being able to rent out my house for close to $8,000. But after doing some market research and seeing large three bedroom condos asking $8,500 in nicer parts of my neighborhood, I figured I'd list at $8,400 and see what would happen. It turns out demand was so strong that my existing tenants agreed to a $300 increase to $8,700 for one year.

The gross cash flow is therefore $2,500 a month, and $4,700 a month being added to my net worth since $2,200 of my mortgage is to principal. There's also non-cash amortization costs, which further lowers the tax bill.

Related: Rental Properties: The Strong Case For Buying More

What If I Bought A Two-Unit Building Instead?

If I divide $8,700 by two, I get $4,350. $4,350 is roughly in the ballpark for a 2/1.5 in the northern part of San Francisco. 80% of the the 2/1.5 condos I look at online are priced between $3,800 – $5,000 a month.  I also own a 2/2 condo in a good location charging $4,000 a month, so I'm very familiar with the 2/X condo market.

I just said that landlords should be able to extract a higher rent for smaller units. So how is it that $8,700 a month for a 4/3.5 SFH has a similar rent than two 2/1.5 condos? Well, I could be losing $1,300 a month owning a SFH since the upper range for a 2/1.5 condo is around $5,000 ($5,000 X 2 = $10,000 – $8,700 = $1,300).

But here's the kicker. As a 38 year old who no longer has the same amount of energy dealing with people, and who has discovered creating online products as the best form of passive income, I'm very happy I don't have two sets of people to deal with! I'd happily accept $1,300 a month less in rent to not have to spend 2X the time dealing with tenant issues. The older we all get, the more we want to just simplify life.

Current Tenant Situation

Right now I've got one master tenant, who electronically auto-pays the SFH rent every month. The master tenant is also responsible for keeping the house in proper shape and coordinating with me whenever there are any issues. The process is simple, despite there being four people in the house.

If I had two condos to rent out, the responsibilities would more than double. I'd have to deal with two separate checks, two kitchens, two water heaters, two electrical grids, two sets of floors, and so forth. There's no guarantee there would only be two people in each 2/1.5 condo either.

There could be a family of three or four in each unit, making the total two condo occupancy 6-8 vs. 4 for my house. Furthermore, I'd probably have to deal with a lot more turnover. Especially if the two people living in each condo are not a couple.

I can comfortably estimate that having two units is at least double the work. I own a condo elsewhere in the city and that is my experience. The tenant is fine, but she's had a revolving door of roommates in the only two years she's been there. It takes time to vet a new tenant, coordinate with the building to let them move in, go over the association rules, collect a deposit, change the directory, etc.

Single-Family Home As An Investment Property

The ease of maintaining a single-family home compared to a multi-unit building is a huge attraction for small landlords like myself who don't employ property managers. The older and wealthier we get, the less we want to deal with other people and the less we care about money.

I still think buying a multi-unit property with the intention of living in one unit and renting out the other units is the best move for maximum wealth creation. It's just better to do so while you're younger. Being a live-in landlord means your tenants will probably be more respectful with you in the building, and it'll be much easier for you to coordinate maintenance.

For me, having more than 1,000 square feet of living space per person was too much. It feels wasteful, like having too many clothes you don't wear sitting in the closet. Meanwhile, some families are freezing during the winter because they don't have enough.

Buy property for a better lifestyle first, rental income second, and capital appreciation third. You might not be able to get maximum rental income if you ever decide to rent out your home and buy another great place, but the benefit of enjoying your money far outweighs the benefit of trying to make more money with money.

The reality is, the single-family real estate market is very strong post-pandemic. Vacancies are declining and rents are spiking. As a result, investing in single-family real estate is a smart long-term investment in my opinion. I currently own three single-family homes, and would buy another if I had the cash.

Rising rents, rising fortunes for landlords

Which Investment Property Type To Buy Recap:

  • Single Family Homes usually provide better capital appreciation, more expansion potential, more tenant type flexibility, and potentially less tenant turnover. Downside includes more hands-on maintenance, and a lower rental income yield. For those who would like to live in the home, make improvements, and then rent out the home, a SFH is the best investment property.
  • Condos are generally cheaper to acquire and may provide a higher rental income yield. Downside includes HOA fees and HOA regulations that may restrict rental freedom and reduce rental profits. You're the king of your condo, but not king of the common domain. For those who cannot afford a single family home, or who like spending less time on maintenance should consider a condo.
  • Multi-unit properties provide maximum rental yield income and a high amount of tenant type flexibility. The main downside is potentially higher turnover rates and much more active management by the landlord. Also check for rent control laws. In San Francisco, multi-unit properties are under rent control, but SFHs and condos are not. For those who have more energy and more time, multi-unit properties are the way to go.

Recommendations To Build Wealth

1) Explore real estate crowdsourcing opportunities.

If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments. You can invest beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City. But they are over 10% in the Midwest if you're looking for strictly investing income returns.

The other great real estate crowdfunding platform is CrowdStreet. CrowdStreet focuses primarily on 18-hour cities where real estate is cheaper and cap rates are higher. Due to positive demographic trends, growth rates may be higher as well.

Both platforms are free to sign up and explore.

2) Refinance your mortgage today. 

Mortgage rates are at all-time lows. Take advantage by checking the latest mortgage rates on Credible. Credible is a top mortgage marketplace where lenders compete for your business. Get free refinance or purchase quotes in minutes. Take advantage before rates go up further!

Buying investment property today is a wise investment. Vacancies are declining, rates are low, and rents are rising. As a result, investors in all types of real estate should benefit for years to come.

67 thoughts on “What Type Of Investment Property To Buy? Single Family Home, Condo, or Multi-Unit”

  1. Conrad O'Connor

    It’s interesting that you elaborate on how buying single-family homes can be a great way to invest your money. I’ve been looking for a new asset to purchase with my savings, so I’m thinking about buying a single-family home. I’m going to look for a good real estate agent near me that can help me purchase a single-family home.

  2. Ellie Davis

    I was not aware that a single-family home will rise more ina a bull market. My brother is thinking about investing in real estate, and we are looking for advice to help him choose the right property. I will let him know about your recommendations to help him choose the right property to buy.

  3. Dylan Peterson

    It’s cool that single family homes are easier to maintain than multi-unit properties. My wife and I would like to start investing in more real estate. We’ll be sure to look into our options for getting a single family home in the future.

  4. Enjoying your articles.

    In this one you said “The 80% range is anywhere from $3,800 – $5,000 a month for similar quality condos based on my Craigslist search”. I’m guessing you are meaning that 80% fall within those 2 numbers and the rest without.

    The way you wrote it sounds like “The 80% Range” is a reflexive tool that you use in many ways. Is this just your utilization of the Pareto Principal and if so how did you come to use it and what else do you find it useful for?


  5. Ashley Johnson

    I liked that you said that one thing to consider when buying rental property is your budget. I would imagine that it would be easy to spend a lot of money on one piece of property or one home. I would be sure to stick to my budget when buying a single-family home as a rental property so that I don’t go into debt.

  6. It got me when you said that condos are cheaper to have while its maintenance is easy. I guess I will be choosing this for myself since I won’t be able to take care of it that much. It’s because of the nature of my job wherein I go all around the world to create content.

  7. tasheena cole

    Hello Sam,
    Great article. It’s been a few years, any major updates on your model above?
    I am planning to purchase a larger primary residence and rent out my current home. I was thinking of purchasing a home with a basement, and renting it as an apt, thereby allowing me 2 instant streams of rental income. My second option was to rent a nice condo/townhome in the center of the city, with low hoa, to get a higher net profit yield. Would you recommend one over the other? Like you, I hate wasting space, and I’m finding most sfh with basements, in good areas, are way too big for me.

  8. Hello Sam,

    Great article. Whats your advice on buying apartments in a different city than the one you live in? I live in NYC metro but thinking about buying an apartment in SL because of better cap rates. Is it hard managing property and tenants remotely? Have you done that before?

  9. The more I read on your site, the more I’m very impressed. You have incredible insight into the topics you write about. You’re experience and knowledge really shows, keep up the great work!

  10. Pingback: Should I Buy A Home When Interest Rates Are Rising? | Financial Samurai

  11. Erik Zimmermann

    What do you recommend for an accidental landlord that cannot sell due to low housing prices: Paying heavily on the mortgage or paying the usual amount on mortgage and investing more in IRA’s/retirement accounts? I have not been able to find a for-sure answer yet, hopefully you can help!

  12. Pingback: How To Minimize Tenant Vacancy To Zero | Financial Samurai

  13. Sam, please write a post about your property management system! We have a multi family rental and I am trying to get more organized with how we manage it. It would be interesting to see how other owners handle it. I have been contemplating buying Yardi software but not sure if it’s worth it since we only have a few units.

  14. I’ve bought, sold and rented all three types. I am done forever with low-income multi-unit properties. The tenants are way too much hassle and the high turnover is a pain. Good tenants are worth their weight in gold! My favorite is small commercial office buildings with good credit tenants. I have one now and hope for another in the future (waiting for another recession). Another great option if you can’t afford one on your own is to buy with partners as tenants in common, which allows you to still qualify for a 1031 exchange at the sale.

  15. I think I’d rent out an SFH if I had to choose. I agree with you that it’s much easier to have only one set of tenants to deal with. Having multiple smaller units would be great if I had an affordable and reliable property manager though. I imagine the turnover with multi-units must be a lot higher plus there are a lot more things that can break!

  16. I own a mix of single family homes and multi-unit homes in the SoCal area, and without a doubt, the SFR properties are significantly easier and cheaper to manage. However, the income potential is definitely in the favor of the multi-unit properties. Also, in the future, with enough cash flow, I can add units to the multi-unit properties since they are typically zoned for a higher number of units than the SFRs. But, if I had my choice, I would rather own 30 SRFs than 30 units in the multi-unit properties.

  17. Gen Y Finance Guy

    We only have one investment property and it is a Condo. We tried playing landlord for the first few years and realized we were lousy landlords. Or maybe we just had bad luck with the first few tenants.

    We now pay a flat $95/month to a property manager we never hear a peep from the tenant. All communication and payment goes through the property manager. We will likely always use a property manager because of this.

    Houses in the area have definitely increased in value at a fast rate than the condo.


    1. That sounds like a great deal and an ideal scenario. I am definitely going to hire a property manager and try it out before selling my home.

      Selling is the last resort. NEVER SELL your income producing properties folks. You will kick yourself 10 years from now.

        1. Good question. I guess I would have to say yes, not even do a 1031 exchange vs. just buy another property and rent out your old property. But if you need to sell your old to buy another, then a 1031 exchange is definitely the way to go. I just LOATHE paying a 5% selling commission still, with all the resources we have on the internet.

          1. I actually bought a property in 2012 and used a 1031 exchange this year to tap into profits and exchange for another property in a much better neighborhood. I’m still questioning my decision, since the original property was generating good positive cash flow with a really good tenant. I will let you know in five years if it was worth it.

          2. Boston Landlord

            FS, I hate paying commission, so I used Redfin to purchase a house in Kendall Sq recently. Then, after everything went wrong with the purchase (sewer issues, failure to disclose easements, an ignorant agent who tried to up my offer by 40k), I took a RE class and got my license so I would never get screwed again. Now, I’m thinking about selling my rental condo in an owner managed 3 family in Charlestown, and my first thought was to sell by myself… but after what I witnessed with my Kendall house, I think RE agents get a higher price (at least in smaller neighborhoods in Boston) bc they know the other realtors very well… maybe too well. They know dishonest ways to get a higher price (fake bidding wars, competing offers, asking buyers to list what they need the house to appraise at in order to buy– is this a practice in SF?). I should also add that I am very discouraged that I will be selling my rental — it has a 3.3% mortgage, but after dealing with my neighbors who hate any/all renters and drove me crazy while I was living in Asia last year, I will never buy in a 3 family owner managed building ever again (my former primary residence, and I lived there before the neighbors!).

  18. I ended up buying an out of state sfh in the midwest instead of a rental condo in my local market. Too scared of hoa’s. I have friends that have had both special assessments around 15% the price of the condo and hoas that wanted to prevent them from renting it out.

    1. Yes, HOAs can be a tricky bastard, eespecially if the Board is made up of cliquey old time homeowners who feel entitled and biased against newer owners.

      How has managing an out of state SFH in the midwest been? That kinda gives me nightmares.

      1. After all expenses, including pm, mortgage, and ins. I see a small cashflow. It is an area I used to live so I know where I wanted. The pm is very selective with tenants which has helped me, and I have friends that would check up on it for me. In the 4 years I have owned it things have gone well. But I understand how reliant I am on a pm. I have heard horror stories of people getting ripped off only to find out months later.

  19. Sam – curious for your take on the SF new construction condo market. Your experience is particularly relevant for my current situation so I’d love to hear your thoughts – I’m currently renting (rent control!) in Pac Heights and looking into buying new construction condo in PH, but am torn as it is my first foray into real estate. Giving up my rent control apt pains me, but I love living in PH and not buying is also worrisome with how the SF market is going.

    Do you think new construction + condo in Pac Heights is a good buy now given current bubbly market, since it’s away from most new construction in SoMa/Mission? Who knows if the tech/real estate bubble will pop now or 3 years from now, but thoughts on condos in a “premium” location like PH both for lifestyle, cap appreciation, and rental (I’d consider renting it out to start).


    1. Ah, rent control! What are you paying now, and how long have you been there? Rent control is great for landlords, not so good for new renters not on rent control.

      New construction projects are asking MAX pricing. It’s nice to have new stuff, but that new stuff gets not so new after 5-10 years, then what? Will the premiums justify fading into one of the rest? It’s kinda like buying a new car in a way.

      I would buy in Pac Heights NOT new to see if you can get a 20% discount to new. There is no way I would buy in SOMA b/c they are throwing up condos like crazy. South Beach is non stop development, and you are at the mercy of some knucklehead who welches on their loan to crush comps. It’s a domino effect.

      There greatest upside I see is the Western part of SF like Inner Sunset, Golden Gate Heights, Inner Richmond. So much cheaper, but only 5 miles away from downtown.

      Read: The Best Place To Buy In San Francisco Or Any Major City Today

      1. Funny you think rent control is good for landlords. Most SF landlords don’t think so and try to fight against it. Just ask the many LL’s in this town with lifer-squatter-tenants paying ~$1000 for 2BR’s they rented 15-20 years ago.

  20. Anastasia Kingsley

    Hi Sam,
    A friend purchased a 4-plex in LA and hired her secretary to screen potential tenants. She lives in the worst unit anonymously (tenants pay and deal with secretary). She says her rental income covers the mortgage upkeep and her own personal utilities. Sounds good to me :)

    1. Thanks for the anecdote. And in 10 years, she is going to do very well for herself, and other people will wonder why this rich ‘ol land lady is!

      It always seems the best time to buy real estate was 10 years ago.

  21. I just about pooped my pants when I saw your monthly property tax amount.
    Another reason to never move to CA!

    1. Gotta pay to play! There is an asymmetric response to expenses vs income ie you poop your pants due to the property tax bill, but you don’t piss your pants at the income.

    2. Property taxes are low in CA. About 1.14%. That’s lower than most states.

      The reason his monthly is so high is because the house costs over $1mil!

      Best thing about CA prop taxes- due to prop 13 they are fixed and can only increase a small percentage per year. Great for buy and hold investors. I save thousands of dollars per month because of it.

    3. Barbchicago

      I actually thought the taxes were low coming from Chicago. Mine are about 4.5k for a 300k condo.
      Most SFH have taxes around 20-25k. They don’t pay your teachers enough I guess. I am a teacher in Chicago and it is hard to start at 50k without a roomie, car and student loans but the pay increase after 8 years is good.

  22. My preference is for multi-tenant and to have the property managed for me. It cuts into your profits so you have to be more careful on the cash flow, perhaps even to the point of making some potential deals infeasible, but it’s worth it to reduce the headaches.

    As you say, the more experience you get, the more you value your peace of mind.

  23. Thanks for writing this unique comparison! I don’t have any experience managing property yet, but it seems like an interesting asset class. I definitely expect to own property down the road when I can afford it. In the meantime, I’m reading as much as I can about the topic. Just curious, in retrospect, do you think it was a good move to buy your first condo in SF instead of waiting a little longer to buy a SFH?

    1. I recommend buying any property you can afford as your primary if you plan to live/own for at least 5 years, preferably 10 years.

      SF is a tough market due to high prices. It’s hard to cash flow for the first 3 years with 20% down. Hence, SF is more of a capital appreciation market, which is riskier, since rent/earnings is the foundation of all asset classes. Therefore, buy in expensive places for lifestyle, hope for capital appreciation, and live long enough that rental income will cashflow positive your place.

      Read: The Best Time To Buy Property Is When You Can Afford It

  24. Even Steven

    We own a SFH and a Multi-Unit, if I were giving advice on anyone starting out I would tell them to do the Multi Unit and live in one unit and rent the others as you will get a real hands on approach to landlord and property management.

    I think anything after your learning and increase cash flows phase, it becomes what are you more comfortable with and what is less hassle. I would say a SFH home would be easier, but it really depends on the quality of tenant and construction of the house(We have a house that was built in 2005 and 1912 for example).

    I think my vote still goes for Multi-Unit assuming the same clientele, because i’m still in an earning phase of real estate.

  25. Sam,

    You’re located in perhaps the greatest rental market in this country. People are fighting tooth and nail trying to get in one of your units… The least they could do is leave you alone and not give you too many problems :)

    I’m currently managing 5 units in the South Bay, and it’s been less effort than my out of state properties which I also pay a PM to take care of for me. Go figure. I think most tenants around here are grateful when you don’t jack up rents every year, so for minor fixes, they’re more than happy to take care of it themselves.

    If I could do things over, I would have made sure to lock down a multiunit building… I ended up buying a portfolio of singles, but some guys I know made out like bandits and were loading up on quads during the downturn… If rents go up by $100, that helps me… These guys get to multiple that by a factor of 4!

    I don’t know enough about the SF market, but down here, you are no longer really able to get a discount by going multifamily. In some cases, its costs more to buy one of those than a standard condo/townhouse.

    1. Hah! My 2/2 condo is kinda like that. Huge demand, so my current tenants are great as they don’t want to lose the place and pay 10% more and fight with the crowd. My house is a different story b/c the price point is much higher, and many of the prospective tenants are downsizing, funny enough. Will have a post on it.

      Owning a quad during accumulation phase is definitely preferable to living/owning one house at the same price due to excess space, and lack of rental income flexibility. So, I can say that I probably lost $150,000 – $350,000 in lost rental income over the past 9.5 years of living in my house vs. owning a multi-unit. BUT, I also lived a better life with more room, and less hassle. It’s a tradeoff!

      Work hard while young, b/c when you’re old, you won’t want to as much.

  26. Done by Forty

    We have gone single family exclusively to this point, but will be closing on our first multi-family in the next month. The returns, on paper, seem to be better…but we will be using a property manager for some of the reasons you noted. Time will tell if we like owning both, or will shift towards a single property asset type.

  27. Barry Allen

    Sam, did you require electronic auto-pay for the SFH in the contract or did you just offer it as an option?

    Also, which electronic auto-pay service do you use? Thanks.

    1. I always mention electronic autopay as the preferred means to pay so that the check doesn’t get “lost in the mail.” Tenants are generally busy professionals and prefer this means of payment too as they don’t have to do anything every month. A win win. My other tenants in my condo have done electronic autopay too.

      Any bank can do it.

        1. There is something to be said by having a physical check in your hand to deposit. I try to always take a picture of my consulting checks to keep as memory. They give me a sense of satisfaction that hard works pays off. When the money is electronically credited to my account, I get maybe 1/3rd the joy as depositing a physical check.

          Electronic money, like stock market money almost feels like funny money.

  28. Hi Sam. Great article. I am nevertheless getting confused about the way you are taking in account deductions/taxes. I don’t own a rental yet so I am probably missing something.

    You mentionned that your deductions represents $6200 – $4100 = $2100/month.
    Considering that you are in the 33% tax bracket, I understand that you can get a deduction on your property taxes and interests which would be worth (2100+1600)*0.33=$1221… ~$900 short of the $2100 mentionned.

    Also I would guess that you have to rental pay income taxes on your rental income so to cover the effective $4980 cost of the mortgage (based on the $1220 deduction calculated above), the rent would need to be 4980/0.67=$7432 (still considering a 33% tax bracket).

    With a $8700 rent, cash flow would then be $1267.

    Again, I don’t have experience with rental properties yet and so I am probably missing something but I would lik to know what it is.



    1. Hi Jerome,

      Thanks for your interest in my finances. Think of owning a rental property like running a business. You don’t pay taxes on the revenue (rent). You pay taxes on the operating profit (rent – expenses).

      So in this case, the gross cash flow is $8,700 rent – $6,200 all costs = $2,500. The taxes are based off $2,500 not $8,700 ie you don’t pay taxes on $8,700 and then deduct the $6,200. And then there’s non cash amortization costs that pretty much wipes out all tax liability.

      Then you’ve got to think about cash flow + principal pay down to calculate what is being added to your net worth every month. There’s several ways to calculate the figures.

      It becomes easier to understand once you own a rental property. Do you own a business? If not, definitely try and build a business and/or accumulate rental property to build wealth.

      Are you a property lawyer or accountant? If so, I’d love to ask you some questions! Thanks

      1. Thanks Sam. I am a civil engineer in training. I don’t own a business but plan to rent our current house in a few year when we will be moving to a bigger one.

        1. Ah, gotcha. I was hoping you were an accountant or property lawyer to pepper you with questions! Let’s touch base again once you start renting out your current home so we can be more on the same page and trade notes on how to maximize profits. Thx

  29. The Alchemist

    Another disadvantage of multi-unit dwellings in San Francisco: You’re subject to the City’s oppressive (for landlords) rent control regulations. From everything I’ve heard, you don’t wanna mess with that!

    1. Ah, good point about rent control, which single family and condos are not subject to.

      If one could buy an empty multi-unit and lock in current market rates and keep raising rates by the inflation index, that won’t be so bad for the first 5-10 years.

  30. Hi Sam. Have you ever been to biggerpockets.com? The entire site is dedicated to real estate investing. They have an excellent blog that covers everything you discussed and more. They also have forums to ask experienced Real Estate investors questions like these. It’s an amazing site for investors

    1. Hi Danny, I’ve met the founders and was thinking of doing a podcast with them. Maybe I will this year! I haven’t had time to check out the community though as I’m busy writing here and responding to folks on FS.

  31. Hi Sam,

    The fact that you have that big of a mortgage and you’re still doing $2,500 in cash flow per month is pretty amazing. Says a lot about pricing power.

    I agree that a condo is usually less hassle and maintenance than a SFH. However, you do get a lot more turnover and sometimes it’s harder to get the rent you want, especially when the market gets soft. Sure, today it’s all good and easy with demand at all time highs. Who knows what the future holds For me, a net yield of around 3.5% more than covers my rent in Montreal and even leaves me with some extra spending money.

    I would tell anyone getting into the SF market to tread very carefully. Keep your standards high no mater what city you’re in. Don’t buy a piece of crap for $1m because you’re scared the market is going to keep going up. Rent for a year and buy yourself some time. Even if prices keep going up, you’ll have more knowledge about the market and will probably end up making a better deal, anyway.

  32. My siblings are buying SF, I choose MF. Yes, more tenants, more problems. But I only have to go to one place for maintenance. It’s a college town, so the crowd is problematic anyways whether you own SF or MF.

    I’m looking at some condo downtown, but the thought of having a mortgage (condo fee) even after you paid it off is crazy to me. There is this 4000 sqft going for $250k, but the condo fee is $800k/mo, are you kidding me? I know a lot of association misuse the condo fee. I trust myself more when I hire people to do maintenance work. But condo association spend the money to hire a person just to collect the money, then the left over to do some minimal work and plan the next year association party? That’s just dumb.

    I’d buy a condo if I’m forced into due to health problems. But it has better to be worth it!

  33. Sam- in the details of your of your SFH rental property I don’t see any figures accounting for maintenance and vacancy. Is that tied in with the misc. costs?

    1. Yes. I haven’t had a vacant month in 10 years though, and don’t plan to have more than one month over a 24 month future time frame. In fact, I’ve earned double rental income for several months before. I have a system in place. Maybe I should write about it!

      How has your land lording experience been so far and which type of property would you choose?

      1. Hey Sam, I would be very interested to read about your property management system, and I bet it would spark awesome conversation from this community.

        Great article.

        My wife and I have a multi unit rental in the seattle area which we don’t live in, and we plan to buy another within the next 12-24 months. We decided to go with multi family for exactly the reason you listed, higher return. I don’t relish the extra work of having multiple tenants to serve, but I am in my growth phase at 29 years old and I’m happy to make the sacrifice.

        I know that if I get burnt out of being a landlord, there are management companies that would happily take my money to absorb the burden. I have even heard that some charge lower fees on a multi unit, though I can’t confirm.

        I’ve also thought that once I’m done scaling up, I could use the higher returns to accelerate paying off the mortgages. That would free up a lot of cash flow to hire a management company. Work hard now to relax later right?

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