Making the decision of whether multifamily or single family is a better investment can be difficult.
Both have their own unique benefits and drawbacks that need to be considered.
Let’s discuss the pros and cons of multifamily vs single family, and let you decide which one is right for you!
What are multifamily and single family properties?
There are two main types of residential properties: multifamily and single family. Multifamily is like the name sounds and contains multiple units under one roof.
This can include apartments, duplexes, triplexes and so on. Single family homes are just that – one unit on its own.
Types of Multifamily Properties:
- Duplex building – A duplex home is a property that contains two separate units. These are usually side by side but can also be stacked on top of each other.
- Triplex building – Triplex is a three-unit building, and like a duplex, can be either side-by-side or stacked.
- Fourplex building – Fourplex is a four-unit building that can either be side-by-side or stacked as well.
- Apartment complex – An apartment complex is a multifamily dwelling that contains five or more units and is considered a commercial property.
- Student housing – Student housing is a type of multifamily property that is designed to house students. These are usually found near college campuses and can be an apartment complex or a dormitory.
- Senior living facility – A senior living facility is a type of multifamily property designed for seniors. These can include anything from retirement homes to assisted living facilities.
Benefits of Investing in Multifamily Properties
Like anything there are multifamily pros and cons but here are several reasons that investors prefer multifamily properties.
They offer the potential for high returns. Because multifamily properties can be rented out to multiple tenants, they have the potential to generate higher returns than single-family homes.
This is something to consider when deciding between investing in a condo, townhouse, or duplex.
They tend to be more stable. Because multifamily properties are leased to multiple tenants, they tend to be more stable than properties that are leased to only one tenant. This stability can provide peace of mind for investors.
They offer diversification opportunities. By investing in multifamily property, investors can diversify their portfolios and mitigate some of the risks associated with investing in a single property type.
They can provide a steadier stream of income.
Because multifamily properties typically have multiple tenants, they can provide a steadier stream of income than single-family homes, which may experience vacancy periods between renters.
They offer economies of scale. Multifamily properties often allow investors to take advantage of economies of scale, such as bulk purchasing discounts and lower insurance rates.
Tactic for Success
Start with something small like a duplex. You don’t want to overwhelm yourself with a large multifamily property when you’re just starting out. Owning a duplex will give you a feel for what it’s like to be a landlord without the extra stress of managing more units.
Benefits of Investing in Single Family Properties
Now that we’ve covered the benefits of investing in multifamily properties, let’s take a look at the benefits of single family.
They offer the potential for high returns. Like multifamily properties, single-family homes can offer the potential for high returns.
In fact, in some markets, single-family homes may actually generate higher returns than multifamily properties.
They tend to be less expensive. Although this is not always the case, single-family homes tend to be less expensive than multifamily properties. This can make them a more affordable option to get started out in.
They are easier to manage. Because they only have one tenant, single-family homes are generally easier to manage than multifamily properties.
This can be a major advantage for investors who do not want to deal with the hassle of managing multiple tenants.
They offer more control. Because they only have one tenant, single-family homes offer investors more control over the property.
This can be beneficial for investors who want to be able to make all the decisions about how the property is managed.
They are easier to finance. In many cases, it is easier to secure financing for a single-family home than it is for a multifamily property.
This can make single-family homes a more attractive option for investors who are looking to borrow money to purchase a property.
Tactic for Success
Add another income stream to your single family home. This can be done by adding an ADU, converting a garage, or finishing a basement. This will help you to make more money and offset any mortgage payments. You could even rent out an RV or build a tiny home on your property to add another stream of income.
How to Decide Which One is Right for You
The decision of whether to invest in a multifamily or single family property is a personal one that depends on a number of factors.
Some investors may prefer the stability and diversification opportunities offered by multifamily properties, while others may prefer the higher potential returns and easier financing available with single-family homes.
Ultimately, the best way to decide which type of property is right for you is to consult with a real estate professional who can help you assess your specific needs and goals.
Trend on the Rise
Investing in REITs instead of buying properties. By investing in a portfolio of REITs, investors can spread their risk across a number of different properties, which can help to protect them from market fluctuations. In addition, REITs offer greater liquidity, meaning that they can be sold more quickly and easily if necessary.
Multifamily and single family properties each offer a unique set of advantages and disadvantages that anyone should consider before making a decision.
Think about what’s important to you and your investment strategy before choosing which one is better for you.