Multi-family vs. Single-family Rental Property Investment
For a new real estate investor, the question of whether to buy a Multi-Family Residence or a Single Family Residence can be a tough question. Like most things in life, there are pros and cons to each. You simply have to decide what is best for you in either case after knowing a few facts. Investing in real estate is a good investment and as long as you have a long-term plan in mind, you can make it successful.
Why Invest in a Multi-Family Residence
At first glance, investing in a multi-family residence seems to bring the most cash flow. After all, more units to rent means more money, right? Well, that depend on your long-term goals. Here are 4 reasons consider investing in an MFR.
Property Cost
While it’s true that the overall cost of an MFR will outstrip an SFR every time, the per unit cost will be far less. Additionally, your cost to maintain that unit and even property manage that unit will be far less on a per unit basis. Let’s say you owned 2 SFRs and 1 MFR with 2 units. The MFR enjoys economies of scale for things like repairs and maintenance. If you need to replace the plumbing in the MFR, you can do one big job on both units, whereas with the SFRs, you’ll have two completely different plumbing jobs and that will mean higher cost. In addition, your state may require an onsite employee if the MFR is over a certain number of units
Financing
The main difference you may not know about property financing is that even with best credit banks will limit the number of mortgages you can hold—usually to 10. But, if you finance 10 MFRs with 5 units each, that’s 50 units you can call your own. And you can enjoy the cash flow of all those tenants.
Vacancy Expenses
This is a no-brainer. If your SFR remains empty, that means the cost for that unit is going to come right out of your pocket. On the flip side, if you have an MFR that’s only partially rented, you can offset some, if not all, of the cost with the rent of the other units that are leased.
Cash Flow
This has been mentioned before, but it’s worth bringing up separately. Typically, with MFRs, you’ll generate a positive cash flow quicker, especially with new units. That said, as MFRs age, and they typically don’t age as well, more of that initial cash flow will be eaten up by maintenance and upkeep costs, so be sure to keep that in mind as you consider where to invest your resources.
Why Invest in a Single-Family Residence
So, with all the above reasons, why would someone consider investing in an SFR instead of an MFR. Again, it depends on your long-term goal. If you’re looking to invest in a property and see a greater return on your investment in the long-run, SFRs might be the best option. Here are 4 reasons to consider a SFR.
Location
Typically, an SFR is in a nicer locale than an MFR. Consider a quiet neighborhood and its typical location compared to where apartments are located. Good property locations can make a unit easier to rent. After all, location, location, location still matters in real estate.
Tenant Quality
Most property management companies will tell you that tenants in SFRs are usually more conscientious about their property than tenants in an MFR. That’s usually because they’re looking for a home rather than just a place to live. Tenants that choose a SFR can have more long term residential goals.
Tenant Turnover
Real Property Management Solutions says that tenant turnover is the single largest cost for real estate investors. That’s why SFRs are often a better play. Longer renting tenants means you won’t have to constantly advertise, show, and re-lease your property.
Exit Strategy
Here is where we talk about long term goals. With an SFR, you should have a goal to sell the house and pocket the investment once the property is paid off or go for a 1031 exchange. If you handle it correctly, you can have a big payday at the end of your investment which can fund a retirement or other investments.
So, which is right for you? That depends on your personal goals and situation. Rental property investing requires time and patience, and with a good partner like Real Property Management Solutions you can be successful.
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HI,
Thank you for explaining this details. I didn`t understand the Multi-family vs. Single-family Rental Property Investment. Now I have a much better idea. Excellent information. keeps up, your good work thanks.
I do like how you mentioned that getting a single family home would be best if you are looking into making a long-term investment return. That is perfect for me as I’ve been planning to own one for a long time. The additional ability to enjoy the privacy compared to apartments would be best too since we’re planning to have kids soon. Thanks!
I loved when you mentioned how you need to consider your long-term goals when choosing a single family house. It is important to understand that if you will be in the same area for a while it might be worth it to have your own space. We have been married for a couple of years and think it is time to get a house and a single family house s the best option for us, so I’m glad I found your page.
There are a ton of reasons to consider investing in a single-family home. As the article points out, one of the big reasons might be for getting more rental money in the long-run. After all, a family is more likely to stay in a house that they are renting for a while rather than hop around like they would if they were renting an apartment.
I like that you mentioned how single family homes are great options for those looking for a long term return on investment. This is something my wife and I have looked into for a while now. It would be great to rent out and let our kids use should they need a place to stay.
It makes sense that you would want a good exit strategy. My sister would love knowing that if done correctly, she can get a big payout from her eventual move away from that home. She might want to keep this in mind as she looks into single family homes for sale.
It is good that you pointed out that if we are planning to make use of our property and invest in that for a good return, a single family house is far better. With that mentioned in the article, you obviously encourage us to buy a single-family residence instead. Since that is really our second reason for looking into a family residence, we are excited to proceed with that and hopefully, find one that caters to our preference.
My brother wanted to buy a home that will be able to fit his family because he’s expecting his third child. It was explained here that a single-family home is a great investment because of the property cost. Moreover, it’s recommended to consult professionals when planning to buy a single family home for sale.
Thanks for letting us know that in an SFR, there is a good property location that can make a unit easier to rent and a quiet neighborhood to consider as well. That really makes it nice to have an SFR instead of living in an apartment that we have been doing for some time now. Yet since we already have two kids now and we want a place where they can really play around freely, we are already planning to have an SFR soon that can meet our budget and preference.
Wow, it sure is interesting to know that people who invest in a single-family residence can enjoy long-term residential goals and therefore more income for investors. my dad is looking to put some of his inheritance to an investment. He is thinking of investing in real estate, so I will be sure to advise him to start with single family homes so that he can start small and also enjoy higher quality tenants for a lot longer.
My husband and I are thinking about investing in real estate and buying a home that we can rent out to college students who are attending the university in our city. You make a great point that a single family home will lead to long renting tenants and this will save us a lot of time and hassle because we won’t have to advertise or look for new tenants as often. Also, a single-family home will allow us to make money in the long run when we eventually sell the home and retire.
Thanks for informing the pros and cons associated with the single family and multi-family rental property investment. Investment in rental property is one of the most beneficial ways of investment as compared to another form of real estate investment. However, investors should know the factors which are detrimental for such kinds of business and the way by which one could deal with them. Location of the installation plays a crucial role in such kinds of investment. So, one should properly plan prior to the investment. Apart from this, rental property needs regular maintenance and one should hire experienced and reliable property management professionals.
My brother and his wife are planning to buy a home because their children want to have their own room. It was explained here that when dealing with a single family home they should consider the location and exit strategy. Furthermore, it’s recommended to hire a professional real estate agent when planning to buy a single family home.
I like what you said about how single family homes are often located in quieter neighborhoods that will always be easier to rent out. My cousin just got his inheritance, and he is looking to invest it in real estate. I will be sure to advise him to consider starting with single-family homes since he can easily find a tenant that way.
I want to start searching for a new home soon. I think a single-family home would be the best option for me. I definitely want to find something that is located in a neighborhood, like you said. Location is a huge priority to me when finding somewhere to live.
That is a good point that a single family home is generally nicer in location. If I were going to get a single family home then I could choose a nice quiet neighborhood as you said. It would be nice to have a quiet neighborhood so that we could have our kids sleep peacefully.
Thank you so much for these tips. i am very much interested to invest in real estate. Great article on real estate seo guide. thanks for help!!
I might consider investing in a single-family residence based on location as you said since it’s a good idea to invest in a good area. Since I have to agree that the tenant quality also matters, I’ll try to invest in one where the tenant is willing to pay religiously. Because you that they’re better as an investment because they tend to stay longer due to lower tenant turnovers, I might consider looking for a real estate property to buy to rent them out soon.