Table of Contents
Investing in rental properties comes with a variety of options that you can choose from in order to make the best investment for your portfolio. Notably, the decision on whether to buy single-family properties or multifamily investments is one that investors need to face time and time again.
While both can be excellent additions to your portfolio, single-family and multifamily homes serve very different roles in building a strong investment portfolio and neither one is consistently a sure-fire selection every single time you go to buy real estate. So, it is important for you to know the advantages of both types of property so that you can make an informed decision.
If you would like to learn about how to finance both of these property styles. I encourage you to click the link below to book a free strategy call with our team at LendCity.
Knowing Your Goals as An Investor
Before you start analysing properties in order to make an investment, it is important to stop and assess your goals as an investor. This includes both immediate and long-term goals that you will want to accomplish.
If you are looking at your portfolio and see a high level of risky properties with high turnover rates, you might want to consider a property that maintains a consistent cash flow with very little need to address tenant turnover. However, if your portfolio is not generating the cash flow you want, it may be better to pursue an option with a much higher potential cash flow yield in order to increase your rental income dramatically.
Discover How To Analyze a Properties Cash Flow With This Step By Step Guide
The Advantages of Investing in Single-Family Rentals
Single-family rentals are the bread and butter of real estate investing. These properties are frequently seen as reliable staples to add to any investment portfolio. This is due to a variety of reasons such as:
Cheaper Initial Investment and Affordable Maintenance
Single-family homes are typically some of the most affordable properties on the market. That means that whether you are a new investor looking to get started or an experienced investor trying to squeeze an extra door into your portfolio, these are going to be the easiest properties to begin with.
These properties are also much more affordable to maintain because you have fewer units and less traffic expected within the building. This means that the general wear and tear on the property would typically be lower than it would be on a multifamily property.
Easier to Resell
After you have finished with a single-family rental property, it is going to be much easier to sell the property and move on to other investments than if you were to buy a multifamily property instead. This is because the pool of buyers is often going to be much smaller when it comes to multifamily properties. After all, while investors and general homebuyers alike have a strong desire to buy single-family homes, multifamily properties are primarily held by investors, corporations, and real estate hobbyists.
While this factor may not matter immediately, it is always important to consider your exit strategy when investing in real estate so that when the time comes, you can shed a property quickly and efficiently.
Lower Turnover Rates
Finally, one of the largest advantages of investing in single-family properties as opposed to multifamily properties is the fact that single-family homes typically have lower turnover rates than multifamily housing. This creates a much more stable and reliable source of cash flow while also minimizing the frequency that you will need to tackle turnover expenses such as cleaning, temporary vacancies, and the screening process.
This is largely due to the fact that unlike apartments and other housing options with multiple dwelling units, single-family homes offer a sense of privacy and independence that allows the tenant to truly view the property as their home. As a result, the tenant is more likely to form an emotional attachment to the property and want to stay longer.
Meanwhile, tenants in multifamily housing often feel a reduced sense of privacy and responsibility in their rentals when compared to their single-family counterparts. This helps to contribute towards the idea of multifamily housing units being steppingstones or temporary housing solutions until the renter can find something better for themselves.
The Advantages of Investing in Multifamily Rentals
While single-family rentals certainly do shine in certain key areas, successful multifamily investments are often a major addition to any investment portfolio and can actually do wonders for achieving the long-term financial freedom that most investors are after. Some of the advantages of these properties are:
Higher Potential Cash Flow
Since multifamily properties have more units that you are capable of renting out to tenants, the maximum overall cash flow potential is going to be much higher than that of a single-family property.
This can also be maximized by strategically setting your rent so that you can cover the entirety of the property’s monthly expenses with a fraction of the property’s units. For example, if you have a fourplex that has $3900 in monthly expenses, and charged $1600 in rent for each unit, your expenses would be covered after only two units are occupied. Afterwards, all of your remaining units are almost purely profit in the form of cash flow.
Scaling Your Portfolio Faster
Another key advantage of multifamily properties is the fact that they can help you scale your portfolio much faster than single family properties. Instead of adding a single door to your portfolio, multifamily properties add multiple doors worth of rental units all at once.
Remember: Different Properties Require Different Financing
Single and multifamily properties have different requirements in terms of property financing for you to consider. While certain lenders may allow you to buy whatever you wish, others will have limitations on the type of properties that they will be willing to finance.
Instead of racking your brains and struggling to find the right lender for you, let us do the work. By calling LendCity, you are gaining access to our network of expert lenders who can help you finance your next investment with no stress.