As a real estate investor, you want to choose the investment property that will be most profitable for you. Both multi-family property and single-family property have their benefits and drawbacks. But which is the best option? We’ve outlined the pros and cons of both multi-family and single-family property investment.
What Is Multi-Family Property?
Multi-family properties have more than one housing unit. The most common properties are townhomes, apartment buildings, condo complexes, and duplexes. Each of these units has to come with its own kitchen, bathroom, and address, although the number of rooms and size of the unit is up to you. These units are often rented by single individuals, small families, and people under the age of thirty-five.
Why Is Investing in Multi-Family Property Beneficial?
Many real estate agents consider the best property for real estate investment to be multi-family properties. These properties typically have higher income, stability, and scalability. Here are a few of the best benefits from investing in multi-family properties.
Income Reliability
In single-family properties, only one income is being generated by one family. This income is relatively small and doesn’t promote much cash flow. Multi-family properties have multiple families in different units. This means that there is income coming from more than one source, which makes cash flow more reliable.
Cost Efficiency
Buying a multi-family property is more cost-effective than buying a single property. Each unit of your multi-family property costs less than one single-family investment property. While the property may be more expensive upfront, you’re saving by not having to buy multiple single-family units to make a profit.
Portfolio Growth
If you’re looking to grow your portfolio as a real estate investor, the best property for real estate investment is multi-family property. You’ll have proof of being an investor in more than one unit, rather than just one singular property with one tenant. Plus, one twenty-unit apartment building is easier to buy than twenty separate single-family homes.
Tax Breaks
With any property investment, you can receive beneficial tax breaks. These tax breaks include utilities, maintenance costs for the property, and property management fees. While these apply to single-family properties as well, multi-family properties will get you larger tax breaks since they are larger properties.
What Are the Drawbacks?
The benefits of investing in a multi-family property are very attractive. However, there are a few drawbacks that are important to consider before investing in a unit. These include:
- Lots of competition. Multi-family properties are popular because of the benefits and cash flow that they bring. This means that you may have to compete with more investors to buy the property.
- Higher upfront costs. Multi-family units are much larger than a single-family property. The upfront costs can be quite expensive and out of budget for many newer real estate investors.
- Management is harder. If you aren’t comfortable with hiring a management company, there are a lot of day-to-day duties that you have to take care of and quite a few tenants to manage. Even with a management company, these tasks take lots of time, money, and maintenance.
What Is Single-Family Property?
Any property that houses only one family–which can be families with children, couples, roommates, or even a single occupant–are considered single-family properties. Single-family property investments are typically conventional homes, but can include mobile homes or single-unit condos. These units are typically rented by families with children, couples, and anyone looking for a long term housing solution.
Why Is Investing in Single-Family Property Beneficial?
Easy to Manage
Single-family properties are simpler to manage for people who are new to real estate investing. With single-family properties, you’ll only have to deal with the needs of one tenant, which often doesn’t require much work.
Easier to Follow Property Regulations
Larger, multi-unit properties require quite a bit of work to ensure they’re meeting regulations. For example, those properties will require more complex fire safety features, such as sprinkler systems and building-wide alarms. Single-family homes only require smoke detectors and a limited number of occupants per room.
Longer Leases
Single-family property investment generally has the benefit of the tenants signing longer leases. Since the property is a house, rather than a smaller apartment or unit, tenants are more likely to want to stay in the unit. You’ll have to fill vacancies less often.
Cheaper Upfront Costs
Single-family properties are relatively small in comparison to multi-family properties. This makes them quite a bit cheaper when paying initial expenses. If you don’t have the money for a downpayment on a large multi-family property investment, single-family homes are the best option.
What Are the Drawbacks?
For some investors, single-family investment is the favored option. Easier to manage, longer leases, and cheaper upfront costs are big selling points for real estate investors. However, a few of the drawbacks of these properties are:
- Risk of losing money. If your tenant can’t pay rent or has to be evicted from your property, you’re without income until you are able to fill that vacancy.
- Smaller cash flow. Having only one family doesn’t generate as much cash flow as having multiple families does. Rent may be higher for your one unit, but still doesn’t produce as much money as multi-family properties.
- Not very scalable. If you’re looking to quickly build your portfolio as a real estate investor, single-family properties aren’t for you. You have to slowly grow your portfolio as you purchase multiple single-family properties, rather than all at once.
Which Should You Choose?
There isn’t one correct answer when it comes to single-family property vs. multi-family property investment. As a real estate investor, you need to evaluate the benefits and drawbacks of each property. Depending on your situation and your interests, it’s up to you to decide which type of property investment is right for you.
