There’s certainly no shortage of options when it comes to investing in property, but this can make the decision process a lengthy one. Something that a lot of people get stuck on when making their first property purchase is whether to invest in a single or multi-family rental property. Both single and multi-family rental properties have their benefits, being able to boost your property portfolio significantly, but there are also downsides. Below we have detailed the pros and cons of both, helping you to decide on the property investment that works best for you.
The Pros of Single-Family Homes
● Often Cheaper to Start With a Single-Family Home
When it comes to investing in property for the first time, it’s important to think about the cost. It’s often cheaper to invest in a single-family home, as they tend to require less capital investment upfront. The down payment is usually cheaper for a single-family rental than it would be for a multi-family rental, which can be costly to start with. This is because single-family homes are smaller and occupy less space.
● Single Family Homes Are Hugely Popular
According to a recent U.S. Census report the number of single-family rentals grew by 31% in the US between 2007 and 2016, whereas the number of multi-family rentals grew by only 14%. Investing in a single-family rental is likely to bring a lot more rental opportunities for buyers, as there’s going to be a high demand from tenants. This also means that single-family homes are generally easier to sell than multi-family properties.
● Single Family Homes Are Easier to Manage
When it comes to keeping things simple and easy to manage, a single-family rental property is often the better choice. Rather than having to deal with multiple tenants, you can focus on one tenant or a small group of tenants in a single unit. You will need to dedicate less time to management, requests, and disputes.
The Pros of Multi-Family Homes
● Higher Rental Income With Multi-Family Homes
As the property will include multiple units, the rental income is often higher with multi-family homes. You could argue that larger capital investment is worth the higher rental income, as long as you have the financial ability to cover the cost to begin with. With a single-family property, there is always a risk of the home being unoccupied. Therefore, there is no rental income. With a multi-family property, this is much less of a problem. Even though one unit may be unoccupied, the others are likely to remain occupied and still turning over a profit.
● Build Up an Impressive Portfolio
As an investor, it’s important to build up an impressive portfolio. This is achieved a lot quicker with multi-family rentals as a number of homes are added to a portfolio at once. Instead of mortgaging a single home, multi-family rental properties allow you to mortgage many homes simultaneously and in one transaction.
● Appreciation of Multiple Unit
If you make repairs or improvements to a single-family home, only that individual property will appreciate in value. When you make repairs or improvements to a multi-family property, every unit will appreciate in value. With a multi-family rental property, it appreciates a lot quicker because all of the individual units are improved if you make any repairs to the building. Repairing the outside of the building will improve all of the units, not just a single-family home.
As there are pros and cons to both types of property, it’s important to weigh the options and which works best for you. Successful property management is all about investing wisely.