When searching for real estate investment properties, you are faced with many options. You have small vs. large properties, expensive vs. more affordable properties, and a multi family home vs. a single family house. Multi-family homes may seem like a good idea at first, considering the return on this property will be lucrative. However, when you include the costs of maintaining a multi-family property, along with several other factors, you may want to think twice about the type of property you are willing to invest in. So, let’s have a look at the reasons why a single family house is the best real estate investment choice.
A Single Family House Is Significantly Less Expensive Than a Multi Family Home
When you invest in a real estate property, you aim to get the most bang for your buck. A single family house is a freestanding property that usually hosts one family. Your average single family home may include 3 bedrooms and 3 bathrooms. The single family house also features a kitchen that is made for use by a single family. In contrast to a single family home, a multi family home includes multiple separate units. A multi-family property may look like a regular home from the outside; however, multi-family homes have separate entrances, and every unit contains its own kitchen, bathrooms, and bedrooms. Multi family properties may also be apartment buildings that contain numerous units.
With a multi family home, you are dealing with multiple units, which obviously means that these types of properties will be significantly more expensive than a single family house. For example, let’s say you are investing in a single family home. In the State of New Jersey, the average listing price of a single family house is $361,228. Depending on the nature of the multi family property, you could be looking at paying at least $100,000 more. Although you can rent out the extra units to tenants, generating a higher cash flow, you must remember that your down payment and monthly mortgage payments will be higher. It is crucial to understand what type of property you are investing in, and if the mortgage and down payment will be worth it.
Of course, you should also consider the fact that since a multi family home is worth more, you will also have to pay much higher property taxes each year than on a single family house.
A Single Family House Requires Less Maintenance Than a Multi Family Home
Aside from the higher costs of the property itself, it also takes a lot of money to maintain these multiple units. Maintaining a single family house is difficult enough. Adding multiple units to the mix only complicates things. When investing in a real estate property, you should always be prepared to run into unexpected costs, such as repairs and renovations. Keeping up with more than one unit at a time is a hassle, especially when things in several of these income properties go wrong at the same time. If you have one tenant having trouble with their kitchen, and another tenant having trouble with the bathroom, you are required to fix both simultaneously. This can be very tiresome and costly. It is much easier to focus on one property at a time, allowing for a positive cash flow.
A Single Family House Is More Desirable Than a Multi Family Home
Of course, desirability for a single family house stems from many different factors including the age range. According to Jonathan Eppers, the CEO of RadPad in Los Angeles, “Our customers who are in their mid to upper 20s mostly want apartments. We find that people searching for a single-family home rental tend to be in their 30s and married or getting married and are thinking about starting a family.”
According to research by Fannie Mae, 52.4% of renters ages 25 to 34 live in single-family homes, compared with 43.4% in apartments.
Let’s face it. Most tenants would prefer to rent a single family house. Tenants prefer privacy, and frequently having having to share a multi family property can turn them away. If tenants have small children upstairs, and there is a young couple living downstairs, they may rethink the multi-family option. Moreover, many times, a multi family home will contain only one backyard. Depending on the rental agreement, not all tenants may have access to the backyard and the outside area which will drive they away. In addition, a single family house may have other amenities that can be used privately. For example, in a multi family home, there may be shared laundry facilities. However, when you are in a single family house, you have private facilities.
A Single Family House Is Easier to Finance Than a Multi Family Home
Financing a single family house is less complicated and more viable than financing a multi family property. Because a 20% down payment is best when purchasing a real estate investment property, coming up with a 20% down payment for a multi family property is very expensive. Moreover, financing a multi family property with many units is very difficult. Peter J. Boyle, a senior loan originator for Summit Mortgage Corp. in Plymouth, Minn said, “Investors must use conventional financing with a minimum down payment for a duplex of 20 percent. For a property with more units, they need a down payment of at least 25 (percent) to 30 percent.”
In addition to a higher down payment, you must meet certain guidelines for FHA loans and conventional mortgages. You must also consider that there are limits on many types of loans available for multi family properties.
You have several options when investing in any real estate property, but the most important thing to study is the best way to optimize your cash flow. Investing in a single family house is definitely the best options for first-time real estate investors as it is more affordable than multi family properties, easier to manage, and more desirable for renters. Be sure to check out Mashvisor for thousands of single family home listings once you are ready to start your real estate investing business.