Six months ago I compared “typical” investments in 2010 in single family homes as rental properties in various parts of Austin. (See Where to invest in Austin real estate?) Then I ranked the “MLS Regions” by Gross Rent Multiplier.
Now, I want to offer an updated look at residential real estate investments in the first half of 2011 — this time including single family homes, duplexes, and fourplexes. Those property types are shown in separate tables a little later in this post, but it is important to point out some deficiencies in these calculations:
First, note that in all cases I have assumed 100% occupancy. That is unlikely to be a valid assumption, but my objective is simply to provide a basis for geographic comparisons, so any common vacancy assumption is about as good as another.
Second, the presence of each property type varies widely from one MLS area to another. In the single family category, I used the same hypothetical property in all areas — 1200 to 1500 SF with 3 bedrooms and 2 full baths. You will see that only 8 of those homes sold in West Austin/Westlake in the first six months of this year, compared to 113 in South Austin. Likewise, duplexes and fourplexes tend to be concentrated, so the sample size here changes significantly. [Note also that I did not include nearby suburban cities in this analysis. Those areas may be preferable depending on your objectives, but I just had to limit the scope of this summary.]
Third, this information is not intended to help you assess the comparative value of investing in a house vs. a duplex or a fourplex. It is only intended to provide a yardstick for comparing the same type of investment from one area to another. By definition, using GRM for these comparisons, I have ignored variations in operating expenses. Ultimately, all real market analysis needs to be neighborhood- and property-specific. Generally, you can expect to find that property management effort and expense may vary from area to area. In addition, it is probably safe to assume that maintenance and repairs will be higher for duplexes and fourplexes than for houses, if only because there are two or four kitchens instead of one, and two to four times as many bathrooms, HVAC systems, etc. Take into account that some utilities may not be metered separately for some multifamily properties and you see another “opportunity” for net income to change.
Finally, note that a vacancy in a house represents a loss of 100% of rental income, whereas a single unit vacancy in a fourplex is a loss of only 25% of income. On the other hand, the probability of vacancy and the likely length of a vacancy may be higher for some multifamily rentals.
With that background, here is how these three investment opportunities fared — on average — around Austin during the first half of this year:
Again, please don’t assume that this data shows that fouplex investments all over town offer better returns than any investment in a single family home. This may help you to compare the possibility of investing in duplexes in different parts of the city, but even then base your decision on analysis of specific properties, and on your tolerance for start-up renovation expenses, ongoing maintenance and repair costs, and your appetite for ongoing property management time and effort and cost.
I hope this is a helpful “high level” view of the area. Feel free to contact me with questions or if you want to discuss your investment objectives.