Multifamily vs. Single Family Investment is an old debate is an old debate which is surfacing on various forum. Each of these forms of investments have their own sets of advantages and disadvantages.

When it comes to investment options, real estate is almost always a forerunner. It is the safest, the most secure and the quickest way to build wealth.

However, when you are thinking to step into the business, there are a lot of things that need to be taken care of. For instance, you need to decide what kind of property will serve your needs the best.

Multifamily vs. Single Family Investment?

 

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It’s hard to decide whether it is better to invest in single-family or multi-family properties, even for the old players. Of course, your primary goal for investment, the market behavior and the availability, everything needs to be analyzed.

However, other than these factors, you also need to take into consideration the few basic differences between the two types of properties and then settle for the one that suits your goals better. Today we are going to do just that by discussing the pros and cons of both the categories. Gets ready for the multifamily vs. single family debate!

Single-family Home Investment: pros

  • It’s Cheaper to begin with: Financial crunch is the main issue for new investors as most lenders require at least 20% of down payment for rental properties. Since single-family homes come with a diverse range of options to choose from, at different prices, it makes them a more suitable option for novices as they are more convenient and budget friendly.
  • Requires Lower Maintenance: Compared to multi-family buildings, single-family homes require less maintenance as only one family is going to reside the property which mean lower upkeep.
  • Larger Tenant pool: It has been found that single unit homes are generally more in demand compared to the buildings housing multiple families. Furthermore, certain studies indicate that renters usually treat single-family homes as their own and thus, take better care of the property and thus in turn, less likely to cause any damage.
  • Lower Turnover Rate: Residents of single houses are mostly looking for stability and are therefore, less likely to move, which indicates a lower turnover and lesser vacancies. Thus, ensuring a smoother flow of rental income.
  • Investment Diversification:  As the real estate market keeps fluctuating, it is better to invest in multiple single occupancy houses at different locations rather than a multi-housing building. This will minimize the loses as even if the demand is lower in one locality, the higher demand and income generation at another locality will balance it. This reduces the volatility and enhances the overall performance of your investment portfolio.
  • Easy Exit Option: Single-family houses are higher in demand and thus, it is easy to resell them because they are more affordable and easier to rent. Therefore, finding a buyer will not require a lot of work whenever you need to raise capital for some other business venture.

You should also read the Basics of Multifamily Real Estate Investment before exploring further.

Single-family Home Investment: Cons

  • High Cost of Vacancies: In case of single houses, vacancies can seriously deteriorate your income as there is no way to balance those loses. Even if the property is vacant only for a couple of months, it can have a huge impact on your business as it will be difficult to manage the mortgage of a house that is not generating any income. If the vacancy extends for a longer period, you may even have to sell the house pertaining to the losses that you will be bearing.
  • Lower Flow of Income: A single family rental is not a very promising source of income as a major chunk of your earning will go towards the loan repayment. This means a very marginal profit for you. Furthermore, the cost of repair and renovation for such properties is very high compared to the income, which makes the property an expensive business.
  • Difficult to Manage: If you own several single-housing properties at different locations, it will be difficult to manage these properties altogether. It is a very tedious and time-consuming task as it will require a lot of things to be managed at once. It will create a lot of clutter and will often lead to mismanagement. Moreover, in case of vacancies the work will increase manifolds.

Multi-Family Housing Investment: pros

  • Higher Income Flow: Multi-family housing properties offer a smooth and better income flow as there are multiple units to be rented to multiple parties. Even vacancies can be easily adjusted as loses from one or two units can be easily covered by the income from other units.
  • Lower Maintenance Cost: As in a multi-housing building, most things will serve multiple parties, therefore, the effective cost of repairs and renovation will be lower as compared to the single-family houses. Besides repairing costs, expenses such as insurance payments, inspection fees, and other maintenance charges will also get reduced. Therefore, multi-family houses are more cost effective.
  • Easy Financing: Contrary to the popular belief that it is difficult to finance a multi-family house sue to the inability to raise such a huge capital, it is found that certain lenders are more willing to lend to these properties. This is pertaining to the lower risk factor in multi-family rentals, so they are a safer investment by financial institutions.
  • House Hacking: One of the biggest advantages of a multiple unit building is that you can occupy one house and rent out the others. The rental income will cover the expenses of mortgage, maintenance, bills, etc. This implies that you can live for free. This phenomenon is referred to as house hacking.
  • Ease of Management: One of the biggest advantages of a multi-apartment building is the reduced paperwork and the ease of handling repairs and other maintenance work. It will save you a lot of time and work and will ultimately lead to better organization.

Multi-Family Housing Investment: Cons

  • High Turnover: One of the biggest disadvantages of owning a multi-unit building is that most of the occupants look for short-term residency and you are often left to fill the vacancies. You may even need to find multiple tenants at once which means that most of your time will be dedicated to filling vacancies. It can be overly frustrating and challenging at times.
  • Difficult to Maintain the Quality of Tenants: Due to the large number of vacancies, you cannot always set the bar of standards very high as it will become more and more difficult for you to fill-in the vacancies and it can also result in loss of many months of income. Therefore, you will often need to adopt a lenient approach while picking your tenants.
  • Difficult to Manage: The higher the number of residents, the greater the number of needs and thus in turn, the difficult it is to manage the building. If you own a property which has more than a sprinkling number of residents, you will need to seek help from a management firm to help you with the property.
  • More exposed to Market Volatility: A multi-family building is often more vulnerable to the volatilities of demand. If there is a fall in demand, you will lose a number of tenants altogether and it will be very difficult to bear the mortgage expenses and other costs.
  • Difficult to Sell: In case you are in urgent need of capital, you cannot easily sell your way out of the building as it is difficult to find a buyer who can afford to arrange such a large sum within a short period of time.

You might also want to read 13 Amazing Ways to Increase Revenue in Multifamily Real Estate.

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Takeaway:

Both single-family housing as well as multi-family housings come with their own set of advantages and disadvantages and so you need to be very analytical while making a choice. Although it might be wiser to go for a single-family housing in the beginning due to the difficulty in raising the requisite capital, in the long run it may or may not be a very good idea.

If you are already in the business, you may know a few positives and negatives of both the options. Where one offers diversity of income, the other offers stability and security. You will need to dedicate some time to carefully plan your business strategies and then decide what best suits your needs for your business to sustain.

Hope you enjoyed this post on the multifamily vs. single family investment, let me know what you think in the comment section below.

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