It is a quite common question in the real estate community whether one should invest solely in single-family or multifamily rental units? There is no doubt that both are profitable investment vehicles but depending on the investor's goals one of the vehicles can offer greater returns.
Typically, a single-family house, is a piece of real estate which houses one family or contains one unit of living space. Single-family homes are usually condominiums, townhouses, or your typical suburban house with the white picket fence. Multifamily homes are when a piece of real estate has multiple units within one property such as a duplex, triplex, or an apartment building.
There are some distinct differences between investing in single-family rentals or multifamily rentals and the aim of this blog is to differentiate both the pros and cons so you can make the best decision for you.
Pros to Single-Family rentals
It is a known fact in the real estate community that single-family rentals will naturally appreciate at a faster rate than multifamily houses. This is due to the increase demand in single-family homes; however, this is not the case for multifamily properties. Most of the people who are buying multifamily properties are seeking for some type of investment opportunity, but in the single-family real estate market both investors and consumers are buying properties thus increasing the value of single-family properties with every sale.
Not only is it very custom for single-family rentals to appreciate faster than multifamily rentals, but it is also true that single-family rentals are usually more affordable than multifamily rentals. Insurance rates, utilities, and even regular maintenance would be a lot more affordable for a single-family house because you will be only taking care of one unit whereas multifamily rentals will usually have multiple families staying at the same property.This results in an increase of utilities, increase need for regular maintenance and a higher insurance rate due to higher likelihood of damages.
More Flexibility as an Investor
As an investor, your future plans for an investment property may change the longer you have a property and one of the pros to single-family properties is that they allow for fairly easy to exit the investment when needed. Due to the increase demand single-family homes if you are thinking about selling your property you will have a high likelihood of offloading the property due to both investors and homebuyers being potential interest in the property. This is not the same case with multifamily units because typically only other investors will be interested in purchasing the deal which could cause some delays in selling the property.
Pros to Multifamily Rentals
Cashflow is King?!
This is a very common saying in the real estate investing community and this is definitely true for multifamily rentals. Multifamily rentals are usually better cashflowing properties than single-family rentals because multifamily investors have multiple rental income streams from tenants. However, single family investors have only one source of income from the one family staying in their property.
Multifamily real estate investors have the advantage of controlling the value of the property based on how much rental income it brings in monthly. Therefore, if the investor can find a way to charge more rent for their property the property inherently becomes more valuable to future investors. This is not the same for single-family homes whom value is dictated through the market by appreciation.
If your goal as an investor is to reap the rewards of immediate cash flow (short-term gain) then multifamily properties maybe a great investment vehicle for you. With that being said, if you would like to benefit eventually through appreciation (long-term gain) then single-family homes could be the best benefit for you.
When deciding to purchase a single-family and multifamily house as an investment property these are just a few of the things you should consider as it relates to pros and cons between the two.