Single-Family vs Multi-family Investing

When looking for real estate investments that provide cash flow, you may be wondering if it’s better to go with multifamily properties or single-family rentals. Unfortunately, there’s no simple answer. But once you consider the downsides and upsides of each, you may find that one suits your particular needs better than the other.

First, let’s look at the plus side of multifamily apartment building properties.

• They are comparatively easy and inexpensive to manage, because that responsibility is usually taken by a professional management company and the cost is a part of the business model, which leaves you free to pursue whatever other interests you might have.
• Another plus: economy of scale. With the purchase of a single building, you might get a couple of dozen units. Obviously this is much simpler than building up the same number of income sources through individual houses, each representing an individual purchase.
• The value of houses tends to be dependent to a large extent on neighborhood values, but that’s not really the case with an apartment complex. That’s because commercial real estate value drives from the income it provides, which you can control by making improvements and increasing rent to a reasonable level.

On the downside, apartment buildings are of course much more expensive than single family homes. Unless you’re willing to borrow a lot of money or find investing partners, the cost might be prohibitive.

So how about the good points of single-family homes?

• Compared to multi-family properties, they’re certainly more affordable. You can start small with one or two and carefully build up more over time if you want.
• They are often pretty darn profitable. In most places around the country these days, it’s possible to net a nice return of several hundred dollars a month.
• They’re great for independent-minded investors looking for a long-term payoff. If you just want to use your own money to purchase, you can acquire properties gradually over a period of years for steady income growth.

The cons? Quite the opposite of commercial properties. Each home purchase you make represents a single rental. There’s a lot more time and effort involved in finding and buying a couple of dozen houses compared to acquiring one apartment building.

Managing multiple single family homes can be choir. If you plan on hiring a management company, keep that cost in mind when crunching the numbers prior to investing in the property.

Additionally, although you have some control over value with a multi-family property, the same isn’t true with single-family homes, where the local market is the deciding factor. And keep in mind that a vacancy when you just own a house or two is much more detrimental than a vacancy when you own, say, a 40-unit building.

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