Investing in residential real estate can be a great way to earn impressive returns and build substantial equity over time. However, once you have decided to put your investment monies into the residential real estate market, it is time to decide whether you will focus on single-family or multifamily investing property types.
Single-family residences, commonly referred to as SFR’s, are typical detached homes that traditionally house only one family. These properties come in all shapes, sizes, and price points. On the other hand,multi-family residences are those that have several units in one building, such as a fourplex or apartment building.
Here is a quick rundown of some of the benefits and drawbacks of each, to help you make an informed investment decision.
Generally speaking, single-family homes tend to appreciate in value at a higher rate than a multi-family property. This can create equity as you own the home, and more potential for profits when the home is eventually sold.
If you don’t have the free cash to purchase an investment property outright, then you likely will be seeking financing to close the deal. When it comes to options, single family homes or properties with four units or less tend to qualify for a variety of loans that a larger multi-family property might not.
As you can imagine, the managing of one tenant leasing one property with single-family real estate is generally easier and has fewer requirements than when an investor is trying to manage many tenants all at once. For investors who are just getting started in real estate management, single family properties can often be easier to handle while multi-family may require engaging professional property management services.
With a single family investment, all of the income tied to that property is concentrated in one place, with one tenant. If the tenant falls behind on rents or the property becomes vacant for a season, there isn’t any income flowing in to cover expenses at all. Conversely, on a multi-family property, the income is usually spread out over several to many units and tenants, so vacancies or rent delays in one unit don’t have as much effect on the cash flow of the overall investment.
Maintenance & Upkeep Costs
Another area to consider is the regular costs that will be required for upkeep on each type of property. Single family homes generally have lower costs for maintenance, but money invested in these properties only benefit one tenant and one property. On the flip side, replacing a roof or resurfacing a parking lot for a multi-family property will probably cost more, but these expenses can be spread out over several or many tenants who produce income.
While this is not a completely extensive list of every pro and con for each investment property type, it does highlight many of the most common considerations when making the choice between single family or multi-family investing properties.