Have you been thinking about investing in real estate? Then, you’ve probably done some reading on the matter and come across one of the eternal debates in the field – should you invest in single-family homes or in multi-family homes? Both kinds of rental properties have some pros and cons, but single-family homes are overall the better investment. Below we show you why.
1. More Affordable: In general the prices of single-family homes are cheaper than those of multi-family homes, simple because of the size, all else equal (such as the city, the neighborhood, the age, the quality, the finishing, the maintenance, the furnishing, the amenities, the attractions, the infrastructure, etc.). Most importantly, this means that they are more affordable, it is easier to buy a single-family home than a multi-family one. This, on the other hand, means that you can start investing in single-family homes earlier in life (before you have saved a significant amount of money) and can obtain a bank loan with less difficulty.
2. Better Cash Flows: Even in hot markets in the 24-hour cities, single-family homes bring higher cash on cash returns than multi-family homes. That’s because you can find single-family homes at relatively reasonable prices, which you can then rent out for higher per unit rent.
Related: What Is a Good Cash on Cash Return?
3. Less Time to Get Rented: Because of the convenience they offer, single-family homes on average get rented significantly faster than multi-family ones.
4. One Tenant Only: Dealing with tenants can be a real headache – delayed rent payments, destroyed property, unpaid utility bills, etc. Single-family homes give you the advantage of having to deal with only one tenant at a time.
5. Better Quality Tenants: Many experts claim that single-family homes attract better quality tenants than multi-family ones. This means that such tenants are more likely to pay their rent on time, cover all agreed upon bills on time, and keep your property in a better shape.
6. Tenants Stay for Longer: On average, tenants who rent single-family homes tend to remain there for longer, including for over a decade in some cases. This has a few important benefits. First of all, you won’t need to go through the frustrating process of choosing new tenants every few months as is often the case with multi-family homes. Second, if tenants are renting your investment property with the idea to stay there for a while, they are more likely to keep it in good shape and to think about it as their own home. This means that they will also do some of the maintenance works on their own instead of bothering you with them.
7. No Fights Between Tenants: That’s a big plus of single-family homes. Humans are humans and often find something to pick a fight with someone, especially if they live in the same property. Oftentimes, the families occupying a multi-family home will keep fighting over who has the right over the patio or the barbeque, who mows the lawn, who cleans the snow, who throws away the garbage, and all sorts of other things. Such fights will inevitably reach you, and you will have to intervene, risking getting some of the tenants angry at you. Worse goes to worse, you might even have to deal with an eviction.
8. Utility Bills: In most cases, in single-family homes tenants pay all the utility bills because they are the only ones who use these services. In contrast, the landlord is the one who usually pays the water – and sometimes even the electricity and gas – bill for multi-family rental homes. So, with single-family homes you make sure you don’t pay for someone forgetting the water running in the kitchen or having the lights on the whole time.
9. Lower Maintenance Costs: Maintaining a single-family home is significantly cheaper than maintaining a multi-family home. The reasons are a few. First, single-family homes are smaller, which means that there is less to maintain. You only need to paint a few rooms, fix one laundry machine, unclog a couple of toilets. On the other hand, depending on the size of your multi-family home, you might end up with an enormous amount of work which will take a lot of money and time. Second, we’ve already mentioned that tenants at single-family homes tend to be neater and even take care of some of the needed repairs.
10. No Need for a Property Manager: Most single-family home landlords succeed in managing their rental property on their own because it is smaller, because they deal with one tenant only, and because maintenance is more doable. This brings down the cost and eliminates the need to deal with a property manager as well as all the distresses associated with that. In contrast, if you end up buying a multi-family home, you will almost definitely have to hire a professional property manager unless you want to drive yourself crazy with the big size, the numerous tenants, and the always-pending repairs.
11. No Need for a Partner: Again, because single-family homes are cheaper and more manageable, in this kind of investment you are more likely to be able to proceed on your own and not need a partner to bring in money or work or anything else. Having said that, it doesn’t mean that you cannot purchase a single-family home through a real estate partnership, but you don’t have to. You have the freedom to decide how to go about it. With multi-family homes, you will almost certainly need some sort of partner.
12. More Diversified Portfolio: It is true that when you buy a multi-family home, you essentially add a few units to your real estate investment portfolio. However, eventually all these units are in the same property, so they are all associated with the same risks. On the other hand, with the money that you would spend on a single multi-family home, you can buy several single-family homes, which will really diversify your portfolio in a meaningful way. You can purchase various kinds of properties in different neighborhoods, cities, states, and even countries.
13. Lower Risk: Directly related to the previous point is the fact that single-family homes are less risky as a type of investment. First, they are cheaper, so you need to take a smaller loan and are thus less likely to default on it. Second, unlike with multi-family homes, you don’t concentrate all your money in a single asset but can spread it across multiple properties.
14. Faster Appreciation: Depending on what your strategy is and for how long you plan to keep your rental property before selling it (if at all), you would be happy to know that single-family homes tend to appreciate in value faster than multi-family homes.
15. More Potential Buyers: Following up on the previous point, it is also easier to find buyers for a single-family home when you decide that it is time to sell. After all, both investors and families looking for a home will be in the pool of potential buyers.
16. More Liquidity: Generally single-family homes sell faster than multi-family ones, even in a slow market.
So, if you’ve decided that a single-family home is the right real estate investment for you, don’t hesitate to check out Mashvisor for various analytics on this type of rental properties across the US.