When I started real estate in 2017, I would tell investors that multi-family units were more about excellent cash flow and less about appreciation in value. If they primarily wanted to rent-and-hold a property to grow in value, a single family home was their best option. But if they wanted a larger cash flow, an investor usually could not beat a duplex or other multi-family property.
Imagine my surprise when I saw duplexes increasing in value like single-family homes throughout the pandemic. The "rule of thumb" I had learned from others turned out not to be true in this weird economy. Duplexes had become crazy expensive and would almost certainly provide negative cash flow for someone who financed 80% of the sale price.
I rarely recommend duplexes now. There are so few that make sense from the standpoint of gross rent ratio. Here are typical examples pulled from the metro Atlanta market. I tried to make the comparisons apples to apples. As you can see, duplexes brought a 10% to 13% rent ratio in 2019. Now, similar properties bring 6% except for a rare few that might hit 9%.
Austell 320k - $2400 monthly rent - 9% Gross Rent Ratio
Lawrenceville 448k - $2200 monthly rent - 5.9% Gross Rent Ratio
Lilburn 373k - $1900 monthly rent - 6.1% Gross Rent Ratio
Cartersville 310k - $1886 monthly rent - 7.3% Gross Rent Ratio
Marietta 420k - $1800 monthly rent - 5.1% Gross Rent Ratio
Austell 188k - $1750 monthly rent - 11.2% Gross Rent Ratio
Lawrenceville - 250k $1950 monthly rent - 9.4% Gross Rent Ratio
Lilburn 230k - $1900 monthly rent - 9.9% Gross Rent Ratio
Cartersville 250k - $1940 monthly rent - 9.3% Gross Rent Ratio
Marietta 177k - $2000 monthly rent - 13.6% Gross Rent Ratio
The result? Duplexes now cost twice as much as they used to (approximately) but rents have not doubled.
The moral of the story is that the market changes and "rules of thumb" go out the window. A knowledgeable agent serving landlord clients has to track changes in markets related to location and property type. Duplexes did appreciate during the pandemic and after in a manner nearly identical to single family homes.
Want to know more? Gross Rent Ratio? Property Types? Questions about the current rental market? Email me at email@example.com
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Derek Leman (770) 378-4673 firstname.lastname@example.org
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