BBQ Capital | Kansas City Real Estate Investing

As promised I’m bringing you an analysis of both a single family home and a multi-family home used as investment properties here in Olathe, Kansas. 

The question presented to me was “isn’t it better to own two single family homes at $115,000 each instead of a duplex at $230,000?”   Both have advantages/disadvantages over the other.  See this January 14, 2006 posting about Multi-Family vs. Single Family.

So what I did was I found a duplex currently for sale in Olathe priced at about $187,000 and a single family home priced at $99,000.  I used these two because they are currently for sale and have both been investment properties within the last five years so I know about what the rents are/should be. 

The results?  Well, I may have to tell you it’s a toss-up…or even that the SFH wins.  Despite my normal belief.  But keep in mind a few things when looking at the numbers below;

• Financing is the sticky wicket right now.  It’s easier and less expensive to get financing on a SFH investment property right now than a multi-family home.  And that is not to be discounted!  Though when prices drop under $100,000 interest rates go back up a bit.  Financing is just a drag…
• These two properties are in Olathe, Kansas.  Not exactly the least expensive place to purchase investment property.  Though you can always count on appreciation.  (Yes, I used the “A” word.) 
• The return numbers were a little lower than I expected.  Rents have softened a bit in the last six months, financing has become more expensive and it seems every property needs a little more work.
• What is not shown is that the single family homes can be purchased at steep discounts making the marginal returns far better when the economy turns.  Themultis are still over-valued.
• You can add a minimum of 50% to these return numbers by purchasing in Blue Springs, MO or other similar market areas.

Single Family Home

Purchase price would be $95,000 with $3,000 in closing for a total purchase cost of $98,000.
Total capital invested: $26,750
GOI: $8,742
Total Operating Expenses: $3,425 (includes property management!)
NOI: $5,317

Based on those numbers we actually have a NEGATIVE cash flow of about $287/yr.

Adding the Four Benefits of Real Estate Investing together and we end up with a Return on Investment WITHOUT Appreciation of about 4.0%.  Aren’t you excited?  Do your own property management and the return rate jumps to about 6.8%.  These are not numbers to get too excited about.  But I just checked my stock portfolio (such as it is) and I’m down 64.44% for the year.  So I’ll take this over that any day.  🙂

Multi-Family Home

Purchase price would be $180,000 with $4,000 in additional closing costs for a total purchase cost of $184,000.
Total capital invested: $49,000
GOI: $16,530
Total Operating Expenses: $5,925 (includes property management)
NOI: $10,605

Based on those numbers we have a cash flow before taxes of $93 for the year. 

Again, taking the 4 Benefits without appreciation your return on investment looks to be 5.1%.  Without property management you could bump that to 7.9%.   Keep in mind that I am not finding the same kind of values in multi-family homes that I’m finding in single family homes.

So Single Family Homes win, right?  Well, I’m leaning that way.