Should You Invest in a Single-Family Home or a Multi-Family Home?
Posted on Wednesday, June 14, 2017
Should you invest in a multi-family or single-family home?
Are you perusing single-family homes for sale, or are you considering multi-family homes as well? Both single- and multi-family homes are solid investment options, but which one should you choose? There are pros and cons to each type of rental housing purchase.
Benefits of Buying a Single-Family Home
Should you look for one property or multiples of a single property? When you're considering buying a single-family home as a rental property, there are some benefits to investing in single-family properties. Here are a few.
- Single-family homes are an easier initial purchase. They're a smaller investment for the beginning investor or for those who are slowly building a portfolio.
- These homes usually gain more value over time than multi-family homes.
- You only need to find one tenant at a time, and there is generally less turnover with a single-family home than with multi-family homes.
- If you have a quality single-family home, the families and couples who rent that home will generally take better care of the home and pay rent more consistently.
- It's easier to sell the home. You can sell it to a family or to another investor.
- Single-family home purchases give you the opportunity to choose from many different neighborhoods, including highly desirable neighborhoods.
Cons of Buying a Single-Family Home
Single-family homes seem to be good starter properties for the beginning landlord, and investing in a few single-family homes will give you a property portfolio. However, you also need to understand the drawbacks of this investment choice:
- If you need to take out a mortgage on each property, you can quickly reach the limit of how much financing you're allowed to hold.
- Each property is different. You need to get to know the quirks and needs of each one.
- You have to visit many different properties throughout the city to do maintenance or inspect your homes.
- If you have just one or two properties, they could both become vacant at the same time, leaving you without any rental income that month.
- It's more expensive to hire someone to do repairs and maintenance and manage single-family homes.
You can be more flexible with your neighborhood when you buy a single-family home.
Benefits of Buying a Multi-Family Home
Investing in your first multi-family property can be intimidating. Should you make the leap? There are many benefits to choosing a multi-family purchase:
- There are government limits on how many properties you can finance at the same time. It can be easier to finance multiple rentals when you purchase a multi-family home. Even though it's just one purchase, you're buying many homes at the same time.
- Multi-family homes may help you make more profit for less space. For instance, if you buy a house with four bedrooms and you buy a duplex, each side with two bedrooms, you can't rent them for the same amount. The four bedroom house will likely rent for more than each duplex unit separately, but the duplex units together will rent for more than the house.
- You consolidate your maintenance. Instead of hiring a landscaper to visit all of your single-family properties, that person can visit your single multi-family home.
- You can be more economical in your purchases. For example, you could replace all of the toilets in your building at the same time, making a bulk discounted purchase.
- You spread out your vacancy losses. You may have more vacancies, but they aren't 100 percent of your rental housing stock. You generally have at least some rental units that are occupied.
Cons of Buying a Multi-Family Home
While buying a multi-family home can be quite an efficient way to become a landlord of multiple homes, you need to consider the down sides of this purchase before you buy:
- The initial cost is higher. You're buying an entire apartment block, townhouse unit, or duplex. This is a large investment.
- Your units are the same age and often have the same fixtures. This means that you'll need to do mass repairs or replacements of certain parts of the home, since they'll age at the same time.
- If something goes wrong with your building as a whole, that can be detrimental to all of your rentals at once. For example, if there are problems with leaks and mold, then that could impact all of your tenants.
- You need to be careful of where you invest. Multi-family homes are not always located in the most desirable neighborhoods.
- If you rent to a lot of mobile, single people, you'll find that your turnover is higher than it would be in a single-family home.
At Open For Homes, we're here to find you the best properties for your needs. Whether you're considering investing in multi-family or single-family homes for sale, take a look at our listings. At the blog at Open For Homes, you'll find great tips on choosing the property that is right for you.