Residential real estate investing is a lucrative aspect of the real estate investments business. However, the dilemma for most real estate investors is whether they should invest in a single family home or a multi family home. Hang on and find out what the better investment property for your investment business is.
In fact, when you look at both property types, they are similar in a way. Both are applicable for tax benefits. These benefits come in the form of tax deductions that apply to property expenses and any losses. They are also a good source of steady rental income as investing in both is considered the best rental strategy, especially, for beginner real estate investors. Moreover, they both generate a good return on investment rate which makes them a great strategy to start investing in.
However, there are always the little details about them that make the difference when deciding which type to go with. Let us take a look at the advantages and disadvantages of investing in either a single family home or a multi family home.
Related: Residential Real Estate Investing: What Makes for the Best Property to Invest in?
The advantages of investing in a single family home and the disadvantages of investing in a multi family home
A single family home is cheaper
When it comes to investing in real estate, financing is an issue for many investors. However, a single family home is more affordable comparing to a multi family home. It is easier to get a loan or even to borrow the money to finance a single family home. On the contrary, a multi family home requires more financing, while taking into consideration the property expenses as well. This means you will have to get a bigger loan to afford the property as well as its expenses.
It is easier to deal with tenants in a single family home
A huge part of becoming a landlord is dealing with tenants. Therefore, for many real estate investors, it is the burden that they try to avoid at any costs. However, when you think about it, it is easier to deal with tenants in a single family home than dealing with multiple tenants in a multi family home. That is, especially, if you are managing the rental property yourself.
Investing in a single family home means easier management
Sure enough, when you have multiple rental housing units on hand, it gets harder to manage, while property management gets easier when investing in a single family home. It is easier to manage a single family home, especially, for new real estate investors. Keep in mind that property management does not only mean that you collect the rent. You are also expected to deal with the tenants’ complaints and requirements. This also includes making sure the rent is paid on time, otherwise, you will have to deal with rental arrears and evictions.
You can also benefit from it financially. When you start with a single family home, you can do the property management yourself. Therefore, you will save up the money for property management. You can still turn to investment management firms, but only when you further grow your business.
A single faimly home has a better appreciation rate
Most real estate investors prefer to invest in rental property not only for the rental income but also for the appreciation. This means that the real estate property’s value rises over time. We are not saying that a multi family home does not appreciate, but it has a lower appreciation rate comparedto a single family home.
Related: The Best Tips for Forced Appreciation in Real Estate Investing
A single family home sells quicker
When it comes time to sell your investment property, you will have a better chance of selling a single family home faster since the demand for single family homes is higher than that on multi family homes. Affordability is also a factor in selling your property. This statement is especially true for beginner real estate investors since they tend to start with affordable investment properties.
The advantages of investing in a multi family home and the disadvantages of investing in a single family home
A multi family home provides more rental income
Of course, multiple rental housing units mean multiple rental income sources. This is the best part of investing in a multi family home versus investing in a single family home. Your rental income can help you cover the loan payments. Therefore, you will still have some extra to put towards growing your real estate investing business.
A multi family has lower vacancy rate
When investing in a single family home, the vacancy rate is either 100% or 0%. On the other hand, when investing in a multi family home, you will not have to deal with 100% vacancies. Even if you manage to rent out only some of the units, they will still help cover the loan and the rental property expenses. So, taking a chance in a multi family home might be worthwhile.
Diversification in multi family homes
Diversification is a great advantage of real estate investing in general. There are plenty of investment strategies that you can go with in order to spread the risks of the investments. This is exactly what you will have when you invest in a multi family home. You will be able to split the risks of investing since some of the rental housing units will cover for others in case you weren’t able to rent them all. On the contrary, if you invest in a single family home, then you have put all your resources in one basket, which means it either succeeds or fails, which also means that the risks are higher.
Related: Where to Invest in Housing in 2017 Outside the US?
Our recommendations
Though both are good for investments, we think that it is better to start with a single family home. We especially recommend single family homes for beginner real estate investors. If you, as an investor, do not feel comfortable or do not have the right experience yet, then a single family home is the way to go. Of course, when you gain the proper knowledge in real estate investing, you can go ahead and invest in multi-family homes.
Moreover, if you have made up your mind on a single family home, you can find the best deals on Mashvisor. Sign up and start searching for your ideal single family home for investment purposes. If you still feel confused, you are welcome to our blog for more information and both property types.
