Landlords tend to own multi-family properties, but there’s also a reasonable number of landlords that own single-family rental properties, who might think that multi-family properties are a waste of time.
The perfect formula to take care of every type of property is different, and like everything in life, it will have pros and cons. If you don’t own either one, here you can get a general panorama on both types of properties, and maybe figure out for yourself which one is the best option for you, no matter if you’re planning on selling, buying, or renting.
Here is a short list of the pros & cons of managing Single Family properties and managing Multifamily Rentals:
Single-Family Rental Property PROs
1. Fewer expenses
Regarding money, a single-family home will – most of the time – be cheaper than other real estate investment properties. The single-family homes are set at lower prices, mostly when they are located in a popular area with high rates of permanence and calmness; why? Because single-family properties are smaller, thus cheaper than another type of real estate properties, making them easier to purchase.
2. Longer staying
A single-family home is almost a synonym for stableness and consistency, and if a family chooses one, then it would be tough for them to leave after a short term. When people are in search of a classic single-family house or are looking to rent it or sell it, it will always be to families that are willing to stay for a long time. A good tenant screening will make this even more possible.
3. You don’t have to furnish with appliances
Appliances are not an obligation when you’re selling, renting, or looking for a single-family house, as potential buyers or tenants most of the time have their appliances and would like to create their design inside of their soon to be “home.”
4. More potential buyers
Single-family property rentals attract all kinds of buyers, no matter if they’re not a big family or the traditional type of potential buyers. People often seek single-family homes to fulfill a dream they might have had since they were children, or would like to have a spare room for guests or turn it into a studio. It’s an advantage you can always get with single-family properties.
5. Lower property taxes
This can vary from state to state, but there are places where multi-family residential properties are assessed at a higher rate for property tax purposes.
Single-Family Rental Property CONs
1. Theft and vandalism
Properties can stay empty for a while, and in the meantime, it can get difficult to hire someone to take care of the property while no one’s living there. With no one around, single-family properties can be a target for theft and vandalism, a risk that is constantly taken in these cases.
2. Vacancy hits harder
When tenants finally decide to rent or buy a single-family property, income is at 100%, but if they decide to move out, there’s no money coming in, which is a problem. The sudden change and instant lack of cash flow can be a rough patch to surpass.
3. More things to repair
Everything that breaks multiplies; thus, there’s an extensive quantity of roofs that can leak or more air conditioners that can stop working. You need to pay more attention to details, as these can make or break a home, and if it doesn’t feel like a home, then there’s a problem.
Multifamily Properties PROs
1. You can pay your mortgage
If you’re a tenant and are renting out one side of a duplex – or triplex – then this can allow you to pay for the entire mortgage by splitting the cost of the mortgage substantially and live free. Living less expensively is possible if you decide to live in a multifamily property.
2. Tax benefits
By owning whether duplex or any multifamily property, the deduction of costs of repairs and maintenance will be easier to make, at least in the side you rent out, as the side you live in is your primary residence. Property managers or a tax professional can help you claim expenses, which can reduce your overall tax burden.
3. Only One Location
When dealing with multifamily properties, you’re only dealing with one location that has it all and covers it all. In the case of multifamily properties, you only have to take care of one roof, one parking lot, and in general, only one place to do all repairs that need to be done. If you own many single-family properties, being up to date on all details can be a hassle. Both can be lots of work, but in comparison, your mind and personal well-being might find a multifamily property easier to cope with.
Multifamily properties don’t deal with the inconstancy of property value like the home market. This means that entrusting in multifamily properties is like having a real estate investment with more stable long-term growth, as what matters the most with this type of property is the cap rate, why? Because it shows the return on investment based on income. Multifamily properties are valued solely on how much income-generating potential they have.
Multifamily Properties CONs
1. Dealing with tenants
Patience is crucial in multifamily properties, as all kind of tenants are living in the same building, some of them can be highly educated, and others may just not be careful on how they treat the door. Both sides of the coin are part of the job experience of multifamily properties, but sometimes, getting some tenants to understand basic neighbor etiquette can be a tough process you might have to go through – like not getting the rent money on time. To prevent this, you need to know how to screen potential tenants, so you don’t end up surprised by any of their behavior.
2. Vacancies happen
Long vacancy time is a common thing in a single-family property and a multifamily property, so you shouldn’t be stunned if you get a vacant unit in a multifamily property. The poor side of this situation is that if you get a vacancy, you’ll have to cover the full cost of the mortgage on your own; and In comparison, two vacancy months in a multifamily property is equal to a collection rate of 92%, while the rate on a single-family property rental is 83%.
3. Frequent turnover
Multifamily property tenants are more fleeting by default – or are first-time renters – which means that at the possibility of starting a family, they will need to move to a larger space. Increased vacancies and expenses can be higher when it comes to single-family properties.
4. Hard to sell
Selling a single-family home can take some time, but potential buyers are always on the look for this type of properties; however, multifamily properties are harder to sell, as investors need to be interested. This will not be as easy as a family looking for a home to live for a considerable amount of time.
Whether you’re managing your first rental property or your 10th, choosing between an SFR or an MFR reduces down to your access to financing, budget, overall goals, and appetite for risk. Both options have their own risks and rewards, and both can be smart additions to your investment portfolio.