Making a property investment is a huge commitment, and finding the right fit for your wallet and investment aims is essential to success. Determining whether to add a single family home or multifamily unit to your rental portfolio is a question on the minds of many renters, and the answer lies in weighing the pros and cons against your personal business goals.
Single Family: The Pros
Single family homes are significantly more affordable than multi-unit dwellings, meaning securing the financing for such purchases is a much easier process. It also means that you can acquire more separate properties in a quicker fashion, because it’s easier to pay off the various down payments.
Easier to Find
It’s much easier to locate single family homes in today’s market and to purchase them at prices lower than market value. These homes are also easier to find in desirable locations, which generally means lower crime rates, better appreciation, and a larger pool of desirable tenants.
Easier to Sell
If you eventually plan to sell off your property portfolio, single family residences will prove to be much easier to sell. Your buyers could include other investors looking to continue renting it out, you may find a person who wants to buy it as a permanent home, or you may have a current tenant who would like to take part in a lease-to-own situation.
Single family homes are valued based on supply and demand, while multifamily units are valued on the condition of the residence and the individual rates coming in. This makes single family homes more likely to appreciate over the years, even if it is a slow but steady growth.
Single Family: The Cons
The costs associated with single family homes is much higher. Say, for example, you have three single family homes in your rental property portfolio. Each time the plumbing has an issue, you’ll need to pay for the plumber to visit and potential repair and replacement costs. If this were to occur in a multi-unit residence, you’d be able to handle all issues in one visit, costing you much less in the long run.
Multifamily: The Pros
This positive is simple; with more dwellings comes more tenants, and with more tenants comes a higher amount of rent checks each month.
More Reliable Income
If you have a vacancy in your single family home, you’re out of luck for however many weeks or months it isn’t filled. Conversely, in a multi-unit home, you’ll still be able to rely on the income from all of the other units, as it’s unlikely you’ll repeatedly face multiple vacancies at the same time. Similarly, if you’re paying off a mortgage, single family home owners with no rental income will have to make their mortgage payment out of pocket, while multi-unit income will likely still be able to cover the mortgage payment.
Lower Average Maintenance Costs
Multi-unit residences have shared spaces; garages, yards, even walls. Because of this, your maintenance costs are reduced because bulk amounts of materials and repairs can be applied to multiple units in one fell swoop.
Multifamily: The Cons
More Capital Required
Multifamily residences are in general much more expensive to acquire than a single family home. In order to get the capital needed, you may need to borrow money from other people or look into down payment financing opportunities.
While you may have more spaces filled in a multi-unit residence, the rates of turnover are much higher. In general, tenants in apartment complexes and similar dwellings tend to be more transient than the average single family home renter. To better avoid these high turnover rates and land a high-quality, long term tenant, use a background check service like MySmartMove.com to ensure you’re placing the right person (and avoid the costly turnover or litigation fees a few months down the road).
Both single family homes and multifamily residences are worthy investments, and both have their pros and cons. The ultimate decision falls onto your shoulders, but hopefully the listed facets will help you determine which route is best for your investment aims. Single Family homes tend to be lower stress ventures, but multi-unit options can bring about higher profits. It’s up to you to weight the tradeoffs and take the plunge.
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
Latest posts by Mr. 4HWD (see all)
- Top Tips for Balancing Work and Personal Life as a Freelancer - December 2, 2016
- How to Consistently Achieve Your Business Goals - December 1, 2016
- Top Tips for Self-Employed Students - November 30, 2016