SHOULD YOU INVEST IN A SINGLE OR MULTI-FAMILY RENTAL PROPERTY?
When you’re getting started in investment real estate, one of the first decisions you’ll need to make concerns the type of property: single-family vs. multi-family. Explore the perks and disadvantages of each to decide which will help you meet your goals.
Pros & Cons of Single-Family Real Estate
A single-family home is typically rented to a family or other group, such as friends. These homes may have yards, porches, patios, or other outdoor spaces and usually, don’t have additional amenities you might find in an apartment complex (such as business centers or swimming pools).
Cheaper and Easier to Finance
Single-family homes cost less and are easier to finance than multi-family properties, which means it’s easier for newbie real estate investors to save up for the down payment and obtain financing.
While you will still need to spend on maintenance with a single-family home, there’s less to maintain than with a multi-family property because you’ve only got one of each major system. There are exceptions to this rule, however. A well-maintained multi-family property may need less work than a run-down single-family home that needs significant remodeling and repair before it can be rented out.
Fewer Personal Problems
More tenants mean more potential for interpersonal conflict. When you rent out a single unit, there could be interpersonal issues (a couple breaks up, or roommates don’t get along). However, the drama will be less, generally speaking, than with a multi-family property where tenants may take a dislike to one another.
Reduced Earnings Potential
With a single-family rental, your only option to increase your earnings is to increase the monthly rent (or decrease your expenses). With a multi-family property, your earning potential multiplies with every unit you can rent out.
Pros & Cons of Multi-Family Real Estate
Multi-family properties contain several units, usually in apartment or condominium style. There’s often shared communal spaces that may have amenities, such as a back deck with a barbecue grill or a children’s play area.
With a single-family home, an unexpected vacancy reduces your income to $0. With a multi-family property, odds are that most units are rented out, even if there’s a vacancy. As a result, you will have a financial cushion that can offset expenses while you try to rent out vacant units.
Greater Cash Flow
Multi-family properties bring a greater cash flow than single-family homes because you can charge a fair rate for several units rather than one unit. While these properties tend to cost more, the greater cash flow potential not only offsets the additional cost to purchase property but increases your income potential.
Harder to Finance (and More Expensive)
The biggest hurdle for new investors is financing multi-family properties, which cost more than single-family homes. Be prepared to save up more for a down payment if you’re trying to get into the multi-family market.
Multi-family properties are less beginner-friendly than single-family homes. That doesn’t mean you can’t start your venture as a real estate investor with multi-family properties. But you should be cautious that you’ll face a steeper learning curve if you choose to go this route.
Whether you choose single-family or multi-family real estate, it helps to bring on a reputable property manager who can take care of the property on your behalf. Property managers can see to everything from maintenance and repairs to advertising and tenant screening. You’ll save time while ensuring your property is managed to maximize your earning potential.
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