There are some varying expert opinions out there on investing in multi-family housing versus single family rentals. However, the majority tends to agree that there are both advantages as well as disadvantages to either scenario. I am here to guide you through some critical lessons I have learned over time by pointing you in the right direction, so that you are ready for success and can hit the ground running.
My first advise to you is that it does not matter which is a better investment. What matters the most is which investment is most appropriate for your time, energy and resources.
If you are delving into real estate investment for the first time, and wondering what is the difference, here is how you can distinguish between single family homes (SFH) as opposed to multi-family homes (MFH):
- SFH is defined as a property that can be a detached house, condo, townhouse, row house, etc.; it has 1 unit and therefore only 1 family living in it.
- A MFH can be described as any property that has more than 1 unit/family living in it. As a result, it could be a house with a basement suite (2 units), a duplex (2 units), a triplex (3 units), so on and so forth.
Advantages of Investing in Multi-Family Homes:
- Multi-units allow and make it easier to consolidate multiple rental units on the same parcel of land which can only enable you to maximize your performing asset (the building units) while minimizing the overhead of the underlying land that youʼre required to purchase.
- Generally you are collecting more than one rent which covers your operating costs much more efficiently. Keep in mind that if one unit is vacant there are other units bringing in revenue that will assist you.
- Rent to price ratio is higher on MFH than on SFH which equates to more cash flow.
- Easier to manage the property as a trip to one building gives you the benefit of visiting many more tenants.
Disadvantages of Investing in Multi-Family Homes:
- Highermaintenancecoststendsduetomorewearandtearbecausetherecanbe more people living in the building, more items to upgrade and replace.
- More limited buyer pool when it is time to sell which also means it might take longer to sell it.
- Financing can be much more rigorous in nature.
Advantages to Investing in Single Family Homes:
- Less maintenance and higher appreciation on the property than a MFH
- Lower utility costs – tenants most of the time have to shoulder the utility bills such water and trash etc.
- Generally, depending on your area, you might be able to require higher rent and at the same time enjoy a lower vacancy rate as some tenants prefer having their own house, as opposed to sharing a multiunit with other renters.
- Greater re-sale opportunities as often it can sell quicker, even in a down market again due to a broader range of potential buyers.
Disadvantages of Investing in Single Family Homes:
- The tendency is that it very seldom cash flows as well as a MFH.
- Much more risk as there is only 1 tenant to pay the rent. Should they vacate and it take you time to find a new tenant, then who pays the mortgage, bills, utilities, etc? Unfortunately, you will be obliged to. The MFH has more than 1 tenant which has the leeway of your collecting more rents to offset the costs.
- The field of renters is much smaller (giving you limited choices) as SFH tend to have higher rents than homes with multi-units.
Now, it is entirely up to you to glean what you need from my article. My hope for you – the investor – is that you are ready to create the most successful strategy that works best for your real estate investing goals.