Real estate is one of the top investment opportunities that will always generate revenue. Investors’ main problem is deciding between investing in multifamily vs. single-family properties.
In general, if you can adequately manage a multifamily property, there is a high chance you could generate millions of dollars each year. Of course, some investors aren’t in the financial position to invest in such a big responsibility.
Please continue reading below if you want to learn more about the difference between multifamily vs. single-family properties. We will cover the main differences between the two, so you can make the best decision for your real estate portfolio needs.
What Is a Multifamily Home?
A multifamily home is a real estate property containing several different units—a few examples of multifamily homes are duplexes and apartment complexes. As a real estate investor, you could benefit from purchasing a multifamily home because you have the opportunity to lease the space out to several different families.
Multifamily Home Benefits
The most significant benefit of a multifamily home is that you won’t have to worry about one family not being able to pay their rent. In a single-family home, there is only one resident in one unit. If they don’t pay their rent, they can’t generate income. Whereas if you have a multifamily property, you can still receive payments from other families in the complex.
A multifamily property is more valuable than a single-family home because of the income it has the opportunity to generate. For example, one single-family home can generate well over $500,000 annually.
In contrast, a single-family home may only generate between $10,000 to $25,000 depending on how much you charge for rent and the cost of your upkeep for the property. With a multifamily property, you have the ability to force appreciation of the property which will increase the income of your asset through renovations and other marketing strategies. This can help increase the value of your property.
When comparing multifamily vs. single-family properties, we find that single-family properties don’t have that same luxury. Instead, these types of properties are at the mercy of the “comps” of the other homes, market conditions, and the supply and demand of the current area, which are entirely out of your control.
Another significant benefit of investing in a multifamily property is its scalability. When you invest in a multifamily home, you have the opportunity to grow your portfolio quicker than you would with single-family properties.
It is more efficient and profitable to acquire and maintain a 15-unit property than it would purchase and manage fifteen single-family homes. Pulling out one loan for a 15-unit property is better than trying to obtain fifteen different mortgages.
What Is a Single-family Home?
As you may have guessed, a single-family home is a home meant to only house one family. This property does not share any walls with another unit and has its own piece of land that belongs solely to the person in that house.
Single-family Home Benefits
A significant benefit of a single-family home is that there is more space and privacy for the resident. Most homes are about 1800 to 2500 square feet, whereas multifamily homes range from 500 square feet to about 1200.
Because there are no shared walls, the resident won’t have to worry about hearing loud noises above, below, or beside them like they would if they lived in an apartment. These neighborhoods where single-family homes reside are typically quieter.
In general, investing in a single-family unit is not as expensive to purchase when compared to a multifamily unit. They tend to have lower down payment requirements and are much easier to finance.
Multifamily vs Single Family
When comparing the two real estate investment options, you will quickly find out that there are significant differences between the two. For example, you may be able to finance a single-family home for less than you would with a multifamily home.
Although that sounds great, you must consider that you won’t get a quick return on your investment. Sure, the multifamily home costs more, but you have a better chance of receiving more income than you would with one single-family home.
Although there is a chance for you to profit more with a multifamily home, there are more responsibilities you must consider. For example, maintaining a large multi-unit property can take a lot of time out of your day if you try to manage it on your own.
You may need to enlist the help of a property management company to take care of the property while you tend to other business dealings. It is an excellent idea to learn more about your options before deciding which investment property is best for you and your real estate investment goals.
As a real estate investor, you do your best to avoid high vacancy percentages. With single family homes, you either have someone living in that home or not. When no one lives there, you aren’t able to collect any income. Whereas with a multifamily unit, if you have 13 of your 15 units occupied, you only miss out on collecting rent on two apartment units.
Choose the Best Investment
Whether you are new to real estate investing or have a couple of properties under your sleeve, choosing between multifamily vs. single-family properties can be challenging. It is best to consider the pros and cons of each property and check in with your motives for building your real estate portfolio. If you found this article helpful and want to learn more real estate tips, check out our Business and Finance section today!