Whether to invest in single family or multifamily real estate is perhaps one of the biggest questions among both new and seasoned real estate investors. As with all investment options, there are pros and cons for each. Ultimately, however, the decision boils down to your personal criteria and investing goals.
To help you get a handle on what may work for you, let’s take a look at some of the benefits of both single family and multifamily real estate.
Single Family Real Estate Investing
Less upfront cost to get started
One of the advantages of investing in a single-family property (particularly for new investors) is that it can cost less and require less capital to get started. Multifamily properties — thanks to their size and earnings potential — often cost more than a single family property.
Similarly, a conventional lender may require a 20% down payment on a residential real estate loan for a single family property. On the other hand, a commercial loan for a sizeable multifamily property could require 25-30% down. While this is a small percentage change, the higher cost of a multifamily property can make this a significant down payment.
More exit strategy options
Another benefit of single-family real estate is that it often offers multiple exit strategies — with a larger resale pool. A single family property could be sold to a home buyer, a rehabber, or another investor, while the potential pool of buyers for a multifamily property will be smaller.
Potentially fewer management issues
With a single-family property, there are potentially fewer management issues — as you’re dealing with one tenant versus many. Investors should also consider the amount of personal time they’ll need to devote to management. With a single family property, you may have the bandwidth to self-manage the property, whereas with a multifamily property you may want to consider a property management company — which can add additional expense.
Multifamily Real Estate Investing
With multifamily properties, you’re purchasing multiple units at a time — which allows investors to scale quicker. With single family homes, this would mean finding (and closing) multiple properties and transactions in order to scale.
Increased rental income
Unless an investor owns multiple single family properties, a multifamily property (thanks to the increased number of units) will typically offer higher rental income. Similarly, multifamily properties also boast less risk of zero income — as all of the units would need to be vacant at one time. However, with a single family property the investor could have a vacancy every time there is turnover and another tenant is not immediately lined up.
Improved economies of scale
With a multifamily property, when you make a big repair (adding a new roof, for example) you’ve essentially repaired — and increased the value — of all your units at one time. On the flip side, with a single family property, you’ve only updated one property. What’s more, it is often more cost-effective to repair several units than it is to fix one, as most contractors will offer a better per-unit rate.
Making the Best Investment Choice for You
No matter what choice you make, real estate investing can be greatly rewarding. To learn more about funding options for your next real estate investment, be sure to explore our flexible loan options at Commercial Direct, a division of Silver Hill Funding, LLC.
Zack North is the Director of Marketing for Commercial Direct. As a regular contributor to a number of top industry publications, Zack enjoys writing about topics that help investors and business owners approach commercial mortgage financing with confidence.