If you’re researching potential real estate investment options, you’ve likely found yourself wondering how single-family properties and multifamily properties compare. Many investors profess the benefits of owning multifamily properties, where one roof can bring in 4+ rental payments each month. However, single-family properties have their advantages too! Here we go through several considerations you should make when purchasing investment properties to help guide you to the best type of property for your situation.
Making money is the main reason to invest in real estate, so naturally, the first consideration to make when comparing single-family to multifamily properties is the potential cash flow. In almost all cases, as long as you’re comparing properties within the same market, multifamily properties will generate more income than their single-family counterparts. This is partially due to economies-of-scale created by multifamily units – for example, both a single-family and multifamily property only have one roof to replace, but the multifamily unit generates several rental payments each month while the single-family only generates one.
With single-family homes, you’re kind of putting all your eggs in one basket. If you lose the tenant in your single-family property, your rental revenue falls to $0 until you can find another tenant. In a multifamily property, losing one tenant doesn’t completely eliminate your revenues.
Multifamily properties have traditionally been stepping stones for tenants, bridging the gap between living with parents or in college and buying their own single-family home. Think single adults and young couples. For this reason, tenants tend to live in multifamily properties for shorter lengths of time than in single-family properties. This means you’ll be searching for new tenants, collecting deposits, and inspecting units more often with a multifamily property. If you’re actively managing your properties, this could mean dozens of hours of your own time working to re-establish your rental revenue stream.
Single-family properties are usually rented by families trying to settle down and establish themselves. Because of the frustrations of moving an entire family, changing schools, and reforming friendships in a new community, single-family property renters tend to stick around a couple of years longer than people living in multifamily units.
There are many factors that influence the value of a property. Market movements, the property’s condition, and the curb appeal of the neighborhood are all big players in determining how much a property is worth. Because single-family homes are typically better maintained by tenants and in nicer neighborhoods, they also tend to appreciate in value more rapidly than multifamily properties. However, smart investors will use forced appreciation tactics to boost the value of their multifamily properties. Since multifamily properties are valued primarily on their potential rental incomes, making strategic improvements and renovations that result in higher rental prices increases the overall value of the property, regardless of other factors.
You need to seriously think about how much time you have to dedicate to actively managing your investment properties. If you work a full-time job or have other demanding responsibilities, you may want to consider being a passive investor and allow a professional property management company to handle the day-to-day operations of your properties. This is even more true for multifamily properties, where tenants tend to come and go more often and maintenance calls come in frequently.
If your properties are in southwestern Florida, Douglas Realty Property Management would love to help you keep your rental revenues flowing with the best property management services on Florida’s Gulf coast.
While major maintenance and repairs on a multifamily property are more cost-efficient than on a single-family home since the multifamily property has larger profit margins, the frequency of maintenance and repair calls is also much higher for a multifamily property. Since each rental unit has its own bathrooms, plumbing, electrical, etc., one issue can result in multiple calls. If you’re trying to balance rental property investing with another job, dealing with the number of maintenance needs in a multifamily property may be more than you can handle. In this case, handing those duties off to a professional property manager is your best bet.
All investors want or need to sell their assets at some point, so you need to consider how easy or hard it will be to sell the property when that time comes. Single-family homes are easy to sell because potential buyers include individuals, families, and other investors. Only investors are typically interested in multifamily properties, so they also take longer to sell.