Is it better to invest in single or multi-family rental properties?
DFY Real Estate
Whether you are an expert or a beginner just getting started in the real estate investment market, it’s worth knowing the pros and cons of your different options. Ultimately, it comes down to your resources, the time and effort you want to put into it, and your income goals. See what these real estate and investment gurus have to say about your investment avenues.
Scott Berens
Scott Berens is the owner of Balsamo Homes and a real estate investor
It Depends on Needs, Time, and Effort
One important consideration is the amount of time and effort you are willing to put into the property. A single-family rental requires more hands-on management than a multi-family property, as you will be responsible for all maintenance and repairs.
Single-family rentals typically have higher vacancy rates than multi-family properties, so you may need to spend more time marketing the property. On the other hand, multi-family properties can provide economies of scale in terms of maintenance and marketing.
Another important consideration is the potential return on investment. Single-family rentals tend to appreciate at a higher rate than multi-family properties, so they can provide a greater return on investment over the long term. However, multi-family properties usually generate higher monthly rental income, so they can provide a better return in the short term.
You must also consider the location of the property. In general, properties in urban areas will be more expensive than those in rural areas. However, urban properties also tend to have higher demand from potential tenants. As a result, they may be a better investment if you’re looking for long-term appreciation.
Finally, it’s important to think about the tenant mix. A multi-family rental may be more appealing to families or young professionals, while a single-family rental may be better suited for retirees or empty nesters. The best choice for an investor will depend on a number of factors, including the availability of property, the amount of financing needed, and the investor’s desired return on investment.
Understand Your Investment Goals And Risk Tolerance
For many investors, single-family rental properties offer the perfect blend of stability and potential for appreciation. They can be easier to finance and manage than multi-family properties and offer the potential for higher rents and longer lease terms.
Plus, the upfront costs are often lower than for multi-family properties. So that means your down payment for mortgage financing can be smaller. Hence, this is a safe and conservative investment option that can offer some returns over time.
Meanwhile, multi-family properties also have their advantages. They can be easier to scale and have more potential for cash flow. They also offer more flexibility in terms of use, allowing you to live in one unit while renting out the others. And because these properties usually appreciate faster than single-family homes, they can provide a higher return on investment.
However, you must factor in the higher costs of purchasing and managing a multi-family property. For example, mortgage financing will be more challenging to obtain, and you’ll need to account for the expenses of upkeep and repairs for multiple units. Taxes and insurance are also typically higher for these investments.
Alan Harder
Alan Harder, Mortgage Broker at Alan Harder
Dan Belcher
Scott Berens is the owner of Balsamo Homes and a real estate investor
It’s Based On Your Desired Income
The size, privacy, and income are some things we consider in investing in a rental property. That’s why real estate experts like me suggest that if someone wants a more exclusive area and aims for equity, they should opt for single-family rental property. However, if those factors mentioned are not a big deal for them and they strive to collect impressive revenue, they can push multi-family rental property.
There are several opportunities you can gain for both single-family and multi-family properties. Investors for multi-family properties can collect monthly cash flows regularly even if the other space is vacant. Despite the advantage for profits, a multi-family property has fewer safety qualities. It is also challenging to manage compared to a single-family property since different groups with various personalities could be your tenant.
On the other hand, the single-family property could be a perfect choice if you have less capital and are just starting to invest since it has a small down payment. It is also your renter’s responsibility to cover the mortgages once they are about to stay on the property, which has fewer worries than the other property. Therefore, there is no better option unless you try both for yourself and find what works.
It Depends On Your Rental Locations
In an area with high homeownership and amenities that appeal to families, such as high-performing public schools, low unemployment rates, playgrounds, parks, etc., investing in single-family homes as rental properties can be a great idea. The turnover is usually lower, the quality of tenants is higher, and when you are ready to unload your property, there should be plenty of demand from future homeowners, so it will sell quickly and for a high price. In an area with higher unemployment rates and lower performing schools, etc., it is a better idea to invest in multi-family rental properties. These areas often have higher turnover rates, higher vacancy rates, and sometimes lower quality tenants deducting from the bottom line of your investment. The addition of multiple apartments within the same building helps to offset the additional cost associated with high turnover rates and high vacant rates.
Melanie Hartmann
Melanie Hartmann, owner of Creo Home Buyers in Baltimore
Warner Quiroga
Warner Quiroga is a Real Estate Investor and Owner of Prestige Home Buyers
Multi-family Investments Offer Higher Profit Margins
It is a personal preference of the investor, but both have their way of making money.
Multi-family rental properties tend to increase in value at a greater rate and offer higher profit margins for investors. It is an excellent choice for investors to invest and build their rental portfolios. Investors can get a better return on investment, especially when factoring in the expenses. However, investors may have to invest more time and effort in finding tenants than single-family homes.
Multi-family [property] will be more expensive to purchase and rent out to tenants. Still, it can generate more profit over time because of the extra income streams, and if there are several units, taxes will be split equally).
Single-family rentals have lower default rates on mortgages, which means that you will be able to receive your payments more consistently and with fewer problems. Additionally, a single-family home is more likely to appreciate over time than a multi-family housing property. A single-family unit that sits on a large lot can be purchased for less and still reap the benefits of multiple tenants down the road.
The benefits of buying a single-family are that they cost less upfront, have higher appreciation potential over time, and provide a greater sense of ownership than rentals, which can feel like an investment instead of your own home.
Depending on your situation and financial situation, either type of home may be the right choice for you.
Vacancies Are Tolerated Better With Multi-Family Units
While there are certainly benefits to investing in single-family homes, like lesser focus on managing individual tenants and the typically high level of demand for a standard single-family house, I’m going to outline why it may be better to invest in multi-family rental property. One of the main benefits that multi-family residential investment boasts over a single-family is that all of your eggs aren’t in one basket. When a vacancy occurs with a single-family rental, you’re no longer getting income at all from the property for x amount of time that the property is vacant. With, say, a three-unit rental property, if you have a vacancy, you still are getting 2/3 of your normal gross income during the time of that vacancy. Let’s use an example of one single-family home that rents for $4,500 per month versus three units in a triplex that each rent for $1,500. First of all, if you have the vacancy, you’re missing $4,500 in gross rents for the SFR versus $1,500 for the multi-unit. Additionally, when you fill that vacancy, you’ll potentially be able to get higher monthly rent in either case. But, the financial hit you could take from the SFR example could be significant if the vacancy is for a slightly longer period. The next benefit of a multi-unit is potentially more opportunity to add units (or legalize one that may already exist). Value-add propositions are always a factor in real estate investment. Sure, you can go through the process of potentially adding a second unit to a primary residence as well, but you must evaluate the costs of doing so as well as the feasibility. From my experience, multi-family rentals can present value and opportunities more often than SFR properties do.
Ken Sisson
Alan Harder, Mortgage Broker at Alan Harder
Omer Reiner
Omer Reiner, Licensed Realtor, and President of FL Cash Home Buyers, LLC
Multi-family Has More Flexibility and Income Opportunity
I recommend investing in multi-family real estate. Appreciation of multi-family real estate has increased close to the same as single-family homes. In addition, multi-family real estate provides more opportunities to create value and income. The owners can sell or even live in a unit while renting out others to have various forms of value and utilization.
Single-family units rarely provide multiple opportunities for utilization that multi-family properties can.
Generate Income From Multiple Units
While it may be more expensive at first, a multi-family rental property is generally a better investment than a single-family home. With a multi-family rental property, you can generate income from multiple units, which can help offset any vacancy rates. Additionally, expenses such as maintenance and repairs are typically shared among all tenants, making them more affordable. If you do things right, a multi-family rental property can quickly fill up with tenants, providing you with a steady stream of income and a fast return on investment.
A multi-family rental property is ideal for those who want to build their portfolio quickly. Buying one property with several units is easier and much more time-efficient than buying multiple single-family homes. You won’t have to work with multiple sellers, go through the hassle of multiple closings, or juggle multiple mortgages. And, if you’re able to get a good deal on a multi-family rental property, your return on investment will be much higher than if you had purchased several single-family homes.
You can also live in one unit of the multi-family rental property while renting out the others, which can help offset your mortgage payments each month. This is a great way to get started in the world of real estate investing, as you’ll have first-hand experience managing tenants and maintaining the property. You’ll also get to know your tenants, which can make it easier to screen future tenants and keep an eye on the property.
So, if you’re looking for a solid investment that will provide you with a good return, a multi-family rental property is a great option. Just be sure to do your research and consult with a real estate professional to ensure that you’re making a wise investment.
Rinal Patel
Rinal Patel, Co-Founder & Licensed Realtor of We Buy Philly Home
Richard Mews
Richard Mews, CEO, Sell With Richard
Utilize A House Hacking Opportunity
A multi-family rental property is a superior investment because it gives you a house hacking opportunity. You may be eligible for a residential FHA loan if you invest in a multi-family rental property and stay in one of the units.
Due to the low down payment of three to five percent required for these loans, this can be a great way to invest more in real estate. But you must meet a few criteria to be eligible, like committing to residing there for at least two years.
Multi-Family Has A Better Cash Flow
It is simple math that a multi-family unit has a better cash flow because the expenses are only for one building. The income is from a few units, which makes it more profitable. But on the other hand, single-family houses are more risk-free when it comes to the real estate market. The reason that single-family investing is the most concrete investment is that the value stays there.
It will never be a time that it won’t be a demand for it because people are always looking [for] where to live. Single-family properties can be purchased by an end-user versus a multi-family building that, in most situations, it is being purchased by an investor, so it has more chances [of being] affected by the housing market and economy.
The same when it comes to management is much easier for a multi-family that has a few units versus having a few single families, which makes it harder. So everything has its pros and cons, and in the real estate market, it depends on the goal, situation, and lifestyle of the investor/buyer.
