The Differences Between Single-Family and Multi-Family Property Investing

Posted on October 30, 2020 by Trevor Shakiba

Investing in residential real estate is a good way to diversify your portfolio, but the properties you invest in will depend on the time you can spend to manage and maintain them. It will also depend on your long-term financial goals. You can start by investing in single-family or multi-family properties, but each one has its pros and cons. By investing in single-family properties, you’d be buying traditional homes that are built for one family or household. But on the multi-family side, you can invest in apartment buildings and condominiums. On a smaller scale, you can invest in duplexes and triplexes. But these are properties that you plan to rent out.

Here are some of the differences between single-family and multi-family property investing.

Single-Family Property Investing

Investing in single-family properties can have a lot of advantages. They can be purchased below “fair market value,” which is an important investment strategy because you can make a profit at the time you purchase it. When you invest in a property at a percentage below market value, you gain that percentage in equity right from the start. If a single-family home is worth $100,000 and you purchase it for $90,000 (which is 90% of the current market value), you gain $10,000 (or a 10% equity stake) on the property when it’s purchased. Many multi-family properties are sold above their current market value, because they’re not as widely available in many areas. And because future improvements will lead to higher rents, the sale prices of multi-family homes tend to be above their current market value.

Property management expenses will vary with what’s required to manage them and the size of the tenant population. High-end single-family properties with more qualified tenants have less turnover than their multi-family counterparts, because people who rent these homes see their living situation as more permanent. They also have more pride with regard to property maintenance and repairs. This will lead to lower costs in these areas, which can be an advantage. Tenants of high-end single-family properties won’t outgrow the space as quickly, because there will be a backyard and more bedrooms.

Multi-Family Property Investing

While there are advantages to investing in single-family homes, investing in multi-family properties can have its benefits. They can give you a more stable source of income because while a vacant single-family home won’t give you anything, a multi-family property will rarely be completely unoccupied. The units aren’t as expensive as single-family homes, so their tenancy will fill up faster. Many first-time investors of multi-family properties will save money by living in one of the units. It also helps them to reduce the time and costs associated with management and maintenance.

With multi-family homes, you can own many units with less of a mortgage loan. If you buy ten single-family homes, you’ll have to take out ten separate mortgages. So, you’ll need to make ten monthly payments, ten property tax payments, and ten property insurance payments. This can be frustrating, because keeping track of the payments and paperwork can be time-consuming. If you buy a ten-unit apartment building, you have the benefit of having the same rental incomes but with only one mortgage, one property tax payment, and one property insurance payment.

There are some clear differences between single-family and multi-family property investing. When you first get into real estate, you want to find properties that fit with your personality and investment strategy. If you want more information about how you can get into real estate investing, be sure to get in touch with Trevor Shakiba at Shakiba Capital.