Investing in Single Family Homes vs Multifamily Homes

Have you been thinking about investing in real estate? Whether you already own some property and are looking to buy more, or if you are a complete novice to investing, it’s a good idea to understand the differences between investing in single family homes, multifamily homes (multiunit buildings) and condo units.

As it happens, this topic is an extremely debated concept in all real estate mediums, whether it’s in an internet forum, your local REIA, or even among expert real estate investors.

 

The Single Family Home

Many people believe that investing in a single-family home would be simpler—and they might be correct. Despite all the landlord horror stories you hear, the majority of tenants pay on time and don’t damage your home. After all, they don’t want to get evicted! Of course, you can always get unlucky and end up with a bad tenant—but this is something that can happen in either a single-family home or a multifamily home.

While tenants do have the potential to destroy things in your home or move out unexpectedly, this is what a deposit is for! And in a single-family home, you only need to concern yourself with one family at a time that can potentially be doing these things in your home.

In a single-family home, it can be harder to keep the place occupied than with a multifamily home. The reason for this is because, in a multifamily home, if someone moves out of a completely occupied home, there are still others left to continue paying the rent while that space gets filled back up. However, to many, the increased safety net and profit margin is not worth the increased time and effort that is so often required of a multifamily home.

 

The Multifamily Home

There are many benefits of choosing to invest in and rent out a multifamily home. For one thing, you can have more families living in your investment, for a combined higher rent amount. This often results in a larger profit margin for you as the investor.

Another benefit that comes with the multifamily home is the fact that you are not completely out of luck if someone moves out unexpectedly or doesn’t renew their lease, leaving you to find a new tenant. With other families still left living in the home, you won’t be completely on your own to cover the mortgage, and might even still have some money coming in depending on what your mortgage is, and what you are charging in rent.

Of course, there is an obvious downside that comes with multifamily home: you have to cope with more than one tenant. While it can be quite the cash cow, you’ll have to deal with tenants and do more work in order to keep those units full. Of course, if you do end up with a bad tenant, again, you can fall back on the income from the other families living in the home while you evict the one causing problems and get that space filled up once more.

Another thing to consider is that the initial investment cost of buying the property in the first place is going to be higher in a unit that will house multiple families.

 

Condo Unit rentals

A third option would be to purchase a residential condo unit to use as a rental.  This can be a way to get started at a lower cost and give you a lot less exposure to repair expenses.

A condo unit will have monthly assessments due that basically go into a pot to pay for common area expenses.  These assessments also cover future major repairs on things like the roof, exterior painting, etc.  For someone just getting started as a landlord not having to worry about major items could mean the difference between success and failure as a landlord.

Keep in mind that you are normally still responsible for maintaining and handling repairs within the unit.  There is homework though-some complexes limit the number and type of rentals.  It is important to take a look at the reserves to make sure assessments have been high enough to put away for those future expenditures we mentioned above.

 

The Verdict

There are a lot of things to consider when it comes to choosing between investing in a single-family home or a multifamily home. At the end of the day, it all comes down to how much time you have, and how much of an initial investment you have to put down. Keeping these things in mind, you should be able to make the decision that is right for your individual situation.

 

Resources for Investors:
Insurance for Rental Properties
Insurance for Apartment Buildings
HOA Insurance
Tips for getting started in single family home investments
Tips for investing in multifamily home investments