A great way to make money is to invest in real-estate. But it can be a difficult decision to choose between investing in single-family properties and multi-family properties. There are pros and cons to each type of investment, so it’s important to be aware of them before choosing where you want your money to go and what type of property you want to oversee.
Single Family Homes: Pros
In most areas in the United States, single-family homes are more readily available than multi-family properties. And due to size, single family homes tend to be less expensive to purchase. Therefore, the process of investing in a single family home can be easier and you’ll need to save up less money.
In terms of investing in a property that you can rent out to a long-term tenant, a single-family home has the advantage. When people rent a place that feels like a home—a place with a yard, multiple rooms and a garage—they tend to stay longer. They’re likely to extend the lease for multiple years and, generally, they will take better care of the property, because they are more attached to it. Landlords tend to have fewer turnovers in single family homes than multi-family homes.
Due to the abundance and lower price point of single family homes, you may be able to purchase more properties. And you can buy them in different areas with different markets; so in the chance that the market drops in one area and affects one of your properties, you will have a home in another area where the market is not affected and the home continues to gain value.
Single Family Homes: Cons
When a renter moves out of a single-family home, you as the landlord will be out of income until you are able to find another renter. That process could take time depending on the area, time of year, and the cost of rent. With multi-family homes, one renter may move out but there will still be cash coming in from the other renters in the duplex or triplex.
On top of this, tenants in single-family homes are likely to pay for most or all utilities, whereas they might pay for very little in a multi-family property. This means that tenants will be spending more on rent each month in a single family home, and this can make it difficult for you as an investor to draw tenants away from considering a multi-family home.
Also, single family homes are very dependent on the market, which can be good or bad depending on the market trends in the area you’re investing in.
Multi Family Homes: Pros
Buying a multi-family home means you can acquire more units in one transaction. If you wanted to invest in multiple units, you can do so by buying just one multi-family home that you can rent to multiple tenants. Whereas, with single-family properties, you’d have to buy homes in order to acquire multiple units from which to make money.
Properties with multiple tenants bring in more rental income. And having more income can create the ability to hire a property manager who can oversee the grounds for you. Oftentimes, investors of single family homes have to oversee repairs and groundskeeping themselves, as the property is too small for hired help; this can lead to more money and time spent on upkeep.
Multi Family Homes: Cons
With a larger property to oversee, it is likely that multiple repairs may be needed at one time. This can create an issue if you are not bringing in enough income to cover the cost of damages. It will take more time and investment upfront to oversee a larger property than it would a single family home, so you will need to go into your investment with more money saved up.
Privacy is an issue that can arise for tenants residing in a multi-family home. Walls between each side of a unit can be thin, so it’s likely that a tenant will be able to hear what their neighbor is doing throughout the day and night. The closeness of this shared space can become an issue for you if your tenants do not get along, and this type of situation creates tension that can lead to conflict.
Things to Consider Before You Buy
When investing in a single family or multi-family property, it is important you consider the area you are purchasing in. If there are a considerable number of single family homes, you should be able to purchase one below its market value. Then you can rent it out to a tenant who is unable to purchase a home but wants to live in one. Multi-family homes tend to be priced higher due to the rarity and scale of them.
Another important consideration is the median age of the population in the area. Is it made up primarily of younger individuals just starting their careers, who do not have large savings? Is it a transient community that sees individuals come and go frequently? Is it a suburban area that has more rooted families and established professionals looking for a place to rent long term? If you want to rent out the property you are buying, then it is important to settle in an area that suits the type of tenants you are looking for.
Before investing, you need to consider the type of property investor you want to be. Will you have time to manage a single family home or a multi-family home? How much money are you hoping to bring in each month through your property investment? The answers to these questions, along with the pros and cons of each type of investment, will help you in your decision.