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April 9, 2008
Two Family v. Three Family
I am looking for opinions on the pros and cons of owning a two family versus a three family. My husband and I were looking for a three family (because it can potentially bring in more income and because we don't need as much space as many two families offer). However, our broker suggested that three family brownstones are harder to sell and may cause us a problem 5-7 years down the road when we want to sell. His rationalle is that many potential buyers are scared of being landlords to more than one unit. He further believes that a two family home will appreciate better.
I would like to hear some opinions on the matter. What has been your experience? What would you do?
Comments
The additional requirements around fire safety codes, etc.. that are required in a 3 family would scare me off a bit.
I don't know how many people feel the same way as I do but I'd definitely suggest getting very educated on the regulations before considering a purchase.
Posted by: Mrs. Limestone at April 9, 2008 3:54 PM
Not to be too cynical, but was the broker trying to sell you a 2-fam at the time? Were you asking about a 3-fam that was someone else's listing? Ask the broker for a list of all the 2-fams and 3-fams in the neighborhood in which yiou are looking that his agency sold in the last year with the time each spent on the market. The data might bear the broker out or might not.
A good broker will have a lot of handy knowledge about the market but there's always a degree of impression management involved, and it is often hard to separate the two.
We bought a two but I think we were indifferent to the 2 vs. 3 question. We just couldn't find a 3 with enough space for ourselves that we could have afforded at the time.
Posted by: slopefarm at April 9, 2008 4:05 PM
Slopefarm, good advice on asking for a list and time on the market. The broker is our broker, so he wasn't trying to sell us anything at the time, he just suggested that a two family may be better. I guess the mortgage rates are also lower on a two rather than a three.
Posted by: mkop at April 9, 2008 4:15 PM
hi, I own a 2 family and a 3 family (live in the latter). The houses are identical in size so the 3 family isn't really more to manage, size-wise anyway. There is slightly more to manage with more tenants, but since I bought the 3 fam expressly because it would generate a better income, that's not an issue.
As far as the RE market goes, who the heck has any idea what's going to happen in 5-7 years? In terms of value, I think houses are harder to sell at the 4-family size and up. 3 is still manageable. There are plenty of people out there who specifically want/need the slightly higher income of a multi-family, so I personally wouldn't let that sway your decision one way or another. You'll lose some potential buyers but not that many.
IMO, the major difference has to do with code. A 3 family is MUCH stricter about it (egresses, sprinklers, self-closing doors, etc.) than a 2 family. It's something to consider if you're planning on having work done and filing with the DOB 'cause they'll give you a violation if your nose ain't clean.
Posted by: herkimer at April 9, 2008 4:19 PM
One of the best things about a three family I've found is that if one tenant moves out, you still have the income from the other. I've found 4 to be even better and had no problem selling the 4 family I used to own. You'll probably find more units cost slightly less per sf but that the market movement over time (% increase or decrease)is not that different. Up to 4 family you don't have to deal with DHCR, so that's a huge plus. Any size just screen your tenants well and you should be ok.
One of the simplest lessons I recommend for the tenant screening process is to never ever rent to anyone who says anything, anything, anything negative about the place.
Posted by: guest at April 9, 2008 5:20 PM
I totally agree with 5:20. I have a 3 family, and a huge benefit was when one tenant moved out, I had the income from the other. It also depends on the size of the building. A 3 family 3 story building is less favorable than a 3 family 4 story building. ( I have the latter) That gives you a duplex, with 2 floor thru apartments.
I doubt very seriously, that the appreciation will be impacted as much as the agent is making it out to be.
The question you should ask yourself is what do you really want. How much space do you want for yourself. If you want a duplex, and don't need the income, then either a 2 or 3 family will do you just fine. But if you want/need the income, a 3 family 4 story building is your best option. And I gaurantee you you'll have no problem selling the place if it's in great condition.
Posted by: PutnamStoner at April 9, 2008 7:16 PM
There is no telling who will be buying what, in 5-7 years but if the three family is a better financial option for you now, go for it. My first home 25 years ago was a three family. The tenants paid my mortgage and their own utilities which enabled my husband and I to save a considerable downpayment to purchase our home in Ditmas Park 15 years ago. The mortgage is now paid off on the three family and even with the occassional dead beat tenant, I still clear a nice monthly profit. We were fortunate to have been in the market at the right time by purchasing in low markets, both times. If you end up not being able to sell in 5-7 years, would renting the enitire house be an option you'd consider?
Posted by: guest at April 9, 2008 11:06 PM
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