Investing in real estate can be a smart and lucrative way to make your money multiply. Once you enter the world of real estate investment, you will discover there are many ways to invest your money.
You can purchase single-family homes, multi-family buildings, commercial properties and even niche investments such as land and mobile homes.
In this article, we will discuss single-family vs. multi-family investments. We will discuss the pros and cons to each below, so you can make the investment best suited to your goals!
Single-Family Investments
Pros:
Usually More Affordable – Typically you will be able to acquire a single-family property at a lower cost than a multi-family property in the same neighborhood.
Easier to Manage Growth – Because of its affordability, acquiring a number of properties over time (as opposed to an apartment building outright) will allow you to pace your growth while keeping costs manageable.
Higher Cash Flow – Typically, a single-family home will have much higher returns as opposed to a multi-family property. Some markets see annual returns upwards of 20%.
Tenant Retention – Tenants typically stay in a single-family home longer than tenants renting an apartment or multi-family unit.
Cons:
Harder to Sell – Selling a large portfolio of single-family homes will likely be more difficult than selling one building with many units. Selling a portfolio of SF homes will require many transactions, many sets of closing costs and many different buyers to deal with. When selling a multi-family building, it is all taken care of with one transaction.
One Tenant Dependant – Your cash flow from the property is dependent upon one tenant. If should find yourself with a sudden, unexpected vacancy, your profits will come to a crashing halt until the house is occupied by new tenants.
Takes Longer To Grow – Building a portfolio will require much more work. You will have to find and successfully acquire many properties to build the same revenue you can amass from one apartment building.
Multi-Family Investments
Pros:
Instantly Build Your Portfolio – You can grow your portfolio quickly. Purchasing 30 single -family homes will take some time, whereas buying a property with 30 units can happen overnight.
Cheaper and Easier to Manage – Overall, it will cost you less money to maintain 1 location as opposed to 30. A property management company will charge less to take care of one building as opposed to a large portfolio of single-family properties.
Cons:
More Expensive – Buying a multi-family property or apartment building is likely to have a higher upfront sale price. If you are just starting out, taking on many units at once can be overwhelming financially.
Higher Vacancy – Units can sit vacant longer and have a higher turnover.
Damage – Overall, multi-family units see more damage than single-family homes. This is partly because a single-family residence can create a sense of ownership for the tenant, whereas living in an apartment building will always remind you that you are in someone else’s space.
The pros and cons really balance themselves out when comparing these types of properties. What it really comes down to is personal preference and the amount of responsibility you wish to take on. While some people are ready to dive in full force with a number of units, others would rather get their feet wet by starting with one, solid, single-family property. No matter what you decide, run the numbers and plan accordingly. Don’t get in over your head by purchasing a property beyond your means!