When starting your investment portfolio, you might be wondering if it’s better to invest in a single-family or multi-family rental property. This can all depend on your current needs and wants. If you’re looking to take on less responsibility, then a single-family rental might be your best option. If you want to make higher profit margins, however, then you’ll probably want to invest in a multi-family residence.
Table of Contents - Generating Profit with Single and Multi-Family Rentals: Which Is Right for You?
Both single-family and multi-family rentals can be good investments as long as you’re prepared. It’s important to do research on both types of property and be aware of the pros and cons of each. Read on to find out about the similarities and differences between investing in either type of property.
How much responsibility are you willing to take on?
Both single-family and multi-family rentals require plenty of responsibility. Taking care of the needs for several families, however, could prove to be much more challenging. Owning a multi-family rental means that you’ll have to take care of the maintenance and other issues for several residences. Sometimes, you’ll even have to deal with tenants having issues with one another. You’ll probably have to put a lot of your time into taking care of your tenants’ needs, even if you hire an on-site maintenance professional.
With single-family rentals, you’re only responsible for the needs of one family. This can be challenging as well, depending on your tenants, but it’s usually not as big of an undertaking as owning a multi-family residence.
What’s your budget?
Do you have enough money for a good down payment? A good rule of thumb is to pay a down payment that’s 20 percent of the property’s entire cost. A down payment this high can make you look good to financers and take some of the strain off your monthly income needs. That said, you need to consider other expenses besides the down payment.
Depending on the property you’re interested in, there could be several repairs needed before it’s ready for tenants. You’ll probably also want to do some landscaping work and have the building looking as good as possible to attract tenants. All these costs can add up and you’ll usually have to pay them before you start getting an income.
While the right type of financing can help cover some of these costs, it’s always a good idea to have extra money of your own on hand. So, if you’re interested in buying a multi-family residence but would end up spending most of your money on a down payment, then it might be better to consider a cheaper single-family residence instead.
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What type of financing do you qualify for?
If you aren’t able to receive the proper financing, then it won’t matter which type of rental you’re trying to invest in. Most financing options in Canada will look at a person’s credit score, debt and more when determining how much of a loan they qualify for. If you’re able to afford a good down payment, then you’ll probably look better to a financing company. This is why it’s usually easier to receive financing for a single-family residence, which is especially true for new investors.
Multi-family residences usually require commercial loans, which are much more complicated than residential loans. It could be stressful to try and understand the ins-and-outs of a residential loan while also researching neighbourhoods and preparing a budget. That’s why many first-time investors decide on pursuing residential loans for single-family residences instead.
You may find that some financing companies make a better offer if you’re investing in a multi-family residence. This is because multi-family buildings usually make more money and are easier to market in certain areas.
Are you looking to resell?
In the current market, single-family homes are quite popular. This is because there are always couples and families looking for a single-family residence to call home. Single-family residences can easily be found within suburban neighbourhoods, where families often like to settle.
Multi-family residences can be a harder sell for investors, especially as the building gets older. Older buildings mean more expensive repairs and other types of maintenance. There are also the costs that go into preparing a property for the market. If you’re looking to sell your property, then it’s important to make sure it looks good. This can mean doing some landscaping work, adding new coats of paint and more.
Is profit your number one priority?
If you’re trying to figure out which type of residence will make the most profit, then there are several things to consider. For the most part, multi-family residences will bring in more money than single-family homes, simply because you’re getting rent payments from several different tenants.
While you’ll usually make more money from a multi-family rental initially, there are other costs that could lower those profit margins. Since multi-family residences are larger, they might require more expensive maintenance and renovation costs. If you need to apply a new coat of paint, for example, this will require much more paint and time to complete. These expenses can greatly depend on the age and condition of the property before you buy it. This is why it’s important to do plenty of research on the property and have a real estate professional helping you.
People usually stay longer in single-family residences, which could mean that you won’t have to worry as much about people moving out and leaving you with no income for a brief period of time. This isn’t always the case, of course. People may decide to move out if they’re unsatisfied with their living conditions—that’s why it’s important to try and keep your tenants happy.
No matter what type of residence you are interested in, it’s important to do your research and develop a good strategy before you buy. If you’re still unsure of which type of property you’d rather invest in, then decide on a good location and see what options they have available. Determining your budget often makes the choice much easier.
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