The Right Investment Option: Single-Family or Multifamily Rentals

  • August 10, 2021
  • admin

“I want to invest in real estate, so I started looking for a property 2 months back. While I initially started searching both single-family and multifamily rentals, I believe a dedicated choice would help me make a quick decision. Which one is better, single-family or multifamily rentals?”

Real estate investments, both single-family and multifamily, are converting options for the future. However, depending on your requirement, budget and returns, single-family and multifamily rentals have benefits and drawbacks.

This post will explore which one is the better choice: single-family or multifamily rentals.

Understanding Single-Family and Multifamily Rentals

Before we move to the discussion, let’s understand what single-family and multifamily rentals are.

A single-family rental is a property with one house. Like most houses, SFR is intended for one family, and it is not built similar to a triplex or duplex, where multiple families can stay.  

A multifamily rental is a property with multiple units. Here, there may be 2-4 houses, such as a triplex or duplex. In this property, more families or sets of individuals can live.

If you get a multifamily rental property with more space than separate units, such as more area than 2 separate units, this may be a commercial, residential property. In this case, your financing options change, you may need to take a commercial loan.

Benefits of Single-Family Rental

Single-family rentals are suitable for individuals looking to invest in a cost-effective property with a low turnover rate. Find some of the benefits of single-family rentals below.

Cost-Effective

When compared to multifamily rentals or apartment buildings, single-family homes are cost-effective. If you have a dedicated budget, then this can be a simpler investment option. Capital investment is small, and mortgage installments are also smaller.

Additionally, SFRs are a blessing to your taxes, as it is the most beneficial tax class in the system.

Better Resale Choices

In SFR, there are better, optimum resale choices. A single-family home has a better appreciation, so its value increase over time. Hence, when you feel the time is right or you can get a valuable price on the property, you can easily consider reselling it. You can sell single homes to builders, investors, cash buyers, house rehabbers, or other such investors. If you evaluate neighborhoods for appreciation regularly, you may be able to buy a property with higher appreciation. You will also notice that appreciation of SFRs is better than MFRs.

Decreased Turnover

When tenants come and go frequently, you have to spend money and time on this activity. When someone leaves, you need to go through hectic repairs, clean, screen new people, etc. Further, until no one is living in the house, you are incurring a rental loss. Usually, in single-family homes, tenants stay for at least three years, and sometimes, more than five years. Residents of SFRs develop a connection with neighbors and the neighborhood. Children attend school, and people bond, which helps them build a life in SFRs, which is why turnover is low.

Diversify Easily

With single-family properties, you may be able to diversify easily. It is no surprise to us that real estate is a dynamic market. One region may be drowning in lower rental rates while a nearby city may be booming. With an SRF, you can diversify your portfolio and reduce your risk to a great extent.  

Benefits of Multifamily Rental

Multifamily rentals are right for individuals looking to scale easily in the future and receive improved cash flow. Find some of the benefits of multifamily rentals below.

Scale Easily

One of the best benefits of a multifamily property is the ability to invest in a larger portfolio. In multifamily homes or apartments, the cost per house is less and property management is comparatively simpler. Any improvement made to the building benefits many units.

For example, installing a pool in the building will improve the value of every unit in the building.

More Cash Flow

Multifamily properties offer increased cash flow. Since you are purchasing more than one unit here, you get consistent cash flow. So, even if one MFR unit is vacated, you will still get rent from other apartments or units.

It is hassle-free for MFR landlords to augment earnings and adjust rentals by offering additional features, such as internet, laundry, etc.

Simpler Financing Options

In some cases, lenders are more inclined towards financing a multifamily home. The reason behind this is cash flow. Since the cash flow in MFR is more, financing organizations can rely on your ability to pay back the mortgage. Depending on your income and estimated cash flow, you get better mortgage loans as well.

However, it is necessary to remember that you need a substantial investment and repayment portfolio along with many other factors, such as credit history, etc.

Option to Live There

Finally, MFR properties offer you a choice to live in one of the apartments. If there are 4-5 units in the building, you can rent out four and live in the fifth one. You would still get rentals without having to pay for your own home.

Conclusion

In conclusion, the choice between single-family and multifamily rentals depends on your buying requirements. Every investor should select a property according to their comfort levels and risk profiles. For instance, a first-time buyer may drift towards SFR to avoid significant risks. However, a regular investor may want to maximize cash flow with MFR. Compare the benefits and make the right decision!

About Us

OHI is a fifteen-year-old real estate services company working with 50+ commercial and residential real estate developers, funds and property management companies across USA. Our deep expertise in real estate accounting, financial analysis, lease administration and asset management has helped clients cut associated costs by 40-50%. We now provide these services to a portfolio of 75000 units across clients.

We invite you to experience finance and accounting outsourcing through us.

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