Investor Resources

Some of the most beautiful things worth having in life comes wrapped in the crown of thorns. Likewise, the decision of yours to invest in real estate has the potential to make you rich. But just one wrong decision and you will hold back many years from achieving financial success in this business. If you are in the market and confused investing between a Single Family Vs Multi-Family Rental. Let’s understand which Real Investment is a right for a first-time investor?  

A Single Family Home costs less and hence is an economical way to start into rental investing. But once you gradually start to gain experience, your opinion of investing will tilt to multi-family properties automatically. Considering you are a first-time investor, start with a single-family rental and gradually scale to multi-family rentals. 

Single-Family Vs Multi-Family Investment

Investing in Single-Family Vs Multi-Family Rental comes with its own risks and rewards. Though you should start with SFH. But, you must know why you need to switch to multi-family properties later.  

What is a Single Family Rental Property?

The Single-Family Rentals are an entry-level asset for an investor. These are affordable residential housing units that are meant to be rented by a Single Family. An SFR is a private space in which the tenant needs not share any area of its dwelling unit with neighbors unlike the common spaces in a multi-family unit. 

What is a Multi-Family Rental Property? 

A Multi-Family Rental Property contains more than one dwelling unit and has shared common spaces, walls, or boundaries. This type of residential investment property can have several individual apartments, duplexes, triplexes that can be rented by more than one family or individual. Though having more than 4 individual units, it becomes a commercial investment property.

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Buying a Single-Family Rental Vs Multi-Family Rental

• Buying a Single Family Property

According to Zillow, a typical Single Family Home in the US ranges anywhere between $107,287 to $270,000.  If you are to purchase this investment property, you can either go by making an all-cash purchase or can go with Single-Family Housing Loans. 

Read: How making a Cash Purchase can save lots of money on your next Rental Purchase?

However, if you consider an average millennial in the US, even less than 58% only have $8000 in savings as per a survey by the Insider and Morning Consult. Forget the cash purchase. Even in order to obtain a mortgage, you are required to put 20% down. I hope you are somewhat different from the rest and have saved enough. Though there are still some financing options available which require putting only 3%-4% down. 

Even a 4% Down payment on a $250,000 property comes at $10,000. Now imagine yourself buying a multi-family home. 

• Buying a Multi-Family Rental Property

The Price of real estate has skyrocketed in the US. Hardly people can afford to buy a home for themselves and hence are forced to live on rent. No doubt, you are entering into the right business. In such times, it is very hard for a new investor to even consider buying a multi-family rental property. 

An MFR on an average starts from $300,000 and goes way up ahead. You can now think to yourself why you should invest in a Single-Family Rental as compared to a Multi-Family Property. 

It is the affordability factor that makes Single Family home a better investment for a first time investor.

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Managing a Single Family Vs Multi-Family Rental Property

You are about to invest in a Rental Business and soon going to start your Landlord Journey. A landlord business is not just about collecting rents. But you will need to manage a lot of things ranging from providing a good service to your tenants and to keep your rental property in the best possible condition. 

When you own a rental property, your tenants require you to act on their maintenance requests, become available for them whenever they want and a lot of other such things. The Big thing short, you should have time to manage your rental property or at least have an alternate plan if you can’t manage it yourself.

 

Managing an SFR is a lot different than managing an MFR

When you own a Single Family Rental Property, you are dealing with less no. of tenants than you do when you have a multi Family Property. The more tenants you have, the more hassle you will occur. 

Assuming you are just starting with Rental Investing, it can be a side hustle for you and you may have other jobs to do as well. But having a multi-family property with lots of tenants, a good chunk of your time is going to be dedicated to your rental business. Unless your business allows and you can actually hire a property management company.

But, hiring a company to manage your property is hardly profitable at least at the initial stages of your rental investment journey. It will be better if you manage it yourself and get the experience first hand.

It is the Single Family Property that you should invest in at the initial stages of your journey, considering the limited resources you have to manage the property.

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Comparing Returns on Single-Family Vs Multi-Family 

This is one front where investing in a single-family home can`t beat the investment in a multifamily home. The returns on a Multifamily property always surpass the return on a single-family home. The sole reason why most big players suggest to invest in a multifamily property. 

Though, I`m not going to discuss the cap rate, cash on cash return, cash flow analysis, or the profitability of a rental property. Being an investor, you must know how to run the cash flow equation on a rental property and I’m assuming you can do it well. If not, learn it today. 

Read: The Rental Maths as easy as 123 

 

Here, I’m discussing the advantage of owning a multi-family rental property. And how it supplements your returns as compared to a single-family property. 

• Vacancy Costs

Occurring to a vacancy can cause a toll on your pocket especially when you have a mortgage to pay every month. Imagine a tenant living in your single family property giving you the notice to vacate. Your income stream will take a dip unless you are able to rent the property again. 

But if this occurs on one of your multi-family property, you have other tenants living in another unit to take care of the bills. Even if one unit stops generating income, the other unit can share the load. 

• Maintenance Costs

Maintaining a Rental Property costs a bomb. It takes a lot out of your pockets and that is the sole reason I suggest to always set aside some emergency funds. Having a multi-family property, the maintenance costs somewhat get shared and don’t bother much. But if you have to make repairs on a single-family home, it actually costs 1.5x extra than it does on multi-family property.   

Imagine fixing a roof on your property. On one hand, you have to fix a roof of an SFH and on another hand, you are fixing the roof on an MFH. The value you will get after fixing a multi-family roof as compared to SFH will have cost you much less. 

Read: Landlord’s worst mistake to pay for the repairs that are your Tenant’s Responsibility. 

• Forced Appreciation

Forced Appreciation is a phenomenon most rental investors use to increase the value of the investment property. With forced appreciation, you make some cosmetic changes to your rental property to bring up its value both in terms of the selling price and increasing rents. 

Imagine doing some landscaping work to improve the value of your property. What do you think will be more profitable in Single Family Home Vs Multi-Family Home? Certainly, you will be able to generate more profits with the multi-family property. Bringing up the value, you can raise the rent for all the units of a multi-family property. While it will be just a unit if it is a single-family unit. A $50 increase in rent for your three-unit multi-family property will increase the combined rent by $150. However, the rent will increase by just $50 if it is a single-family unit. 

Clearly, if you compare the profitability index of investment on Multi Family House Vs Single Family Home, it is the Multi Family Property that will pass with flying colors. 

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So Is It Single-Family or Multi-Family Rental That You Should Invest in?

There is no doubt that a Multi-Family Property is better in terms of scalability and overall profits. But still, there is no match for a Single Family home in terms of affordability, and ease of managing a rental property.

If you see, buying a property and then managing it properly are two main aspects of a Rental Business. And for a first-time investor, it is wise to start small, learn the game well. And then repeat to scale it to whatever level you want. 

Though some may say and even I believe too that real estate investors hunt for deals. No matter how big the money is involved. If it can give profit, money can be sourced. But to reach this level, you should have prior experience and this experience you will get by starting small.  

And to your surprise, it is the single-family properties that tend to appreciate better in value with time. If you can analyze, there is always more demand for entry-level homes than higher-priced properties.  

So, as a first-time investor, go on and invest in a single-family rental instead of a multi-family property. Though you can consider a multi-family if you have a plan to live in one unit and rent the other unit. Or you have enough money in your pocket to put a sizable down payment on a multi-family property. 

“Excited to Start into Rental Investing, here is an exact guide to Start a Rental Business From Scratch.”