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Single Family vs Multi-Family Investing

Single Family vs Multi Family Investing

When we start to consider real estate investing we have a decision to make. The game we chose to play, aka the types of properties we decide to work with,  is a critical decision. When we take a wide view we see two types of properties: commercial and residential, and all their subcategories. When we look at residential we have single family, or multi-families (2, 3, or 4 units in one building). 

We’re going to look at residential investing today, and the benefits of investing in either single or multi-family properties.

 

Multifamily Investing Benefits

A multi-family is any property with two, three, or four units under one roof. After 4 units it’s considered commercial. Sometimes a property, like townhouses or compounds, buildings that are attached to each other on one plot of land. All the units are livable aka have room to sleep, a kitchen, and a bathroom. As with anything, one or multiple people can own the property, while one or multiple people might rent it. 

Although single families are the prevalent property type, multi-families offer plenty of opportunity. It keeps all your tenants under one roof, potentially saving money as well as your energy in it’s upkeep, advertising, etc. 

If we look to multi’s as an investor, we see a slew of benefits including:

  • Cash Flow: We’ll start with the simple math of it; multi-families mean you have multiple units, and single families mean you have one. Having multiple sources of income is a no-brainer, but the price often leads people to start with singles and move up into multi’s, especially if they’re flipping then want to secure mutli’s for recurring monthly income once they have funds and credibility to investors under their belt.
  • Value: When valued, multi’s usually clock in higher than singles since they have multiple units and therefore multiple sources of income on the same land plot.
  • Supplemental Incomes: When one unit is empty, the income from the other units might offset the missed income, so there’s a better chance of staying in the green every month.
  • Scaling: We’re able to acquire mutliple properties at a time when we buy one multifamily property. What does that mean? It means that with the purchase of one building we have up to four single family homes in the same property, for some intents and purposes. That means makes them a great addition to your portfolio, and it also open doors down the road. You might want to commercialize some of— or the whole— property.
  • Ease of Management:  It makes it easy for property managers by condensing many properties into one plot of land. If you have 4 tenants all in separate single homes and it snows, you’ll have to send a plow to four locations. If you have a 4-family, you only need send it to one. These also generate enough income to justify hiring a property manager if you want a hands-off situation, even if you’re thinking down the road.
  • Tax Benefits: We’ll claim the depreciation of property to offset a lot of the rental income we get.

 

Single Family Investing Benefits

A single-family property is a free-standing residential dwelling built on a single lot with no shared walls. Usually owner-occupied, they also have potential as investment properties whether we flip them or rent them.

Record-low mortgage rates and fast-rising rental rates make it a lucrative deal. Some things to consider:

  • Relatively Affordable: The biggest reason people look to single families when they get into investing is price. They require way less down than multi-families, often by 10-15%, on top of lower maintenance costs. Beyond even that, tenants usually pay all utilities and landscaping costs, which is a common way landlords sweeten their multi-family apartments to prospective renters. Insurance is also much lower.
  • High Appreciation: Single-families usually appreciate faster than other properties. Multifamily properties valued as investments, with people looking to income vs expenses. Singles are valued by the market; supply and demand.
  • Easy to Finance: Usually. Interest rates go down and loan-to-value goes up. Since they usually cost less than multis, we often see cash buying investors scoop them up. If the buyer plans to rent it or owner-occupy, that will change the rates they're charged on their loans.
  • Easy to Manage: It's easy to make sense of that, though very subjective. 

 

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