Should I invest in a Single Family or Multi-Family Property?

One of the most important choices you will have to make when it comes to investing in real estate is whether to buy a single-family home or a multi-family property. Before selecting a choice, it is important to consider the distinct benefits and drawbacks that each alternative offers. The advantages and disadvantages of purchasing each property will be discussed in this article.

Single Family Residence

A single-family residence is a home that typically holds one family. For investors who are just getting started in the real estate market or seeking a lower-risk investment, this form of property is a popular option.

The following are some benefits of purchasing a single-family home:

1. Easier Financing: It is often simpler to finance a single-family home rather than financing a multi-family unit building. Single-family homes are usually more affordable and have a higher resale value than multi-family buildings, making them more favorable to lenders.
2. Lower Maintenance Costs: Since single-family homes are smaller than multi-family buildings and on, upkeep is less expensive. This could lower your total costs and boost your revenue.
3. Easier to Manage: Single-family homes are simpler to handle because there is only one tenant living there. This is particularly true if you intend to handle the property management yourself.

There are also some drawbacks to purchasing and investing in a single-family home:

1. Lower Rental Income: The income potential of a Single-family residence is generally quite lower than the potential of a multi-family property. The length of time to obtain a profit and pay back the money it cost to obtain the property takes longer.
2. Higher Vacancy Rates: since the property is typically rented to one family at a time, there is a higher chance the property would be vacant at different times for different lengths when moving from one tenant to another.

Multi-Family Property:

A multi-family property is a building or a home that contains 5 or more units that would be each rented to a different tenant.

Here are some of the advantages of a Multi-Family Property:

1. Higher Rental Income: the income potential on these properties can seemingly feel endless as you could venture into investing in an apartment complex or multiple-unit property. There are multiple income revenue streams coming in on the one investment since there are multiple tenants occupying the property at one time.
2. Lower Vacancy Rates: the pressure of always maintaining a well-qualified tenant in each unit is much lower because you can have a vacant unit and typically still have enough income to cover the monthly expense of the property.
3. Economies of Scale: You can lower your per-unit monthly and annual expenses when investing in a multi-family unit versus a single-family residence. The repairs, utilities, maintenance, and other costs of investing in real estate are spread across multiple units.

Although the advantages seem favorable for Multi-Family properties, there are also some drawbacks:

1. Higher Maintenance Costs: Multi-family properties require higher maintenance costs and typically require a property management fee for them to take care of the everyday situations that pop up when servicing a home for multiple tenants. The more units the higher the overall monthly costs would be for the investor
2. Higher Upfront Costs: The main drawback to investing in these properties, is the capital it takes to purchase the multi-family property. It typically requires a joint venture to afford the initial investment into the property.

Conclusion

When selecting the real estate property type you would invest in, you must first consider a multitude of elements and create a strategic plan that fits your aspirations, budget, and expectations.

We recommend starting with a single-family residence as your first investment property to gain experience and a better understanding of what it takes to be a real estate investor. You can then begin to weigh the benefits and risks of a multi-family property as a potential future investment opportunity. We also highly recommend investigating a multi-unit property where the tenants range between 2-4 units and generate multiple revenue streams but still keep the expenses at a relatively moderate amount.

Speak to our expert team to create your very own personalized strategy for investing in real estate.