If you’re thinking about being a buy-and-hold investor, one of the first questions you might have is whether should you buy single-family properties or multifamily. Spoiler alert, there is no right or wrong answer. It ultimately depends on your goals and your comfort level. Both options have their pros and cons. Let me break it down for you, so you can decide for yourself.
Pros of investing in a single-family home:
– Single-family homes are usually cheaper than multi-family homes, of course, it depends on your market. What does this mean to you? It means you can get started with less money and less debt.
– Single-family homes are easier to manage and maintain than multi-family homes since you only have to deal with one tenant and one property.
– Single family homes tend to appreciate faster than multi-family homes since they are more influenced by the demand and supply of the housing market. This also provides you with multiple exit strategies.
– Single family homes offer more privacy and flexibility for the tenant, which can make them more attractive, easier to rent, and command higher rents over multifamily units.
Cons of investing in a single-family home:
– Single family homes can have lower cash flow than multi-family homes since you only have one source of income and higher expenses per unit.
– Single family homes have higher vacancy risk than multi-family homes since you lose 100% of your income when the property is vacant.
– Single-family homes have lower economies of scale than multi-family homes since you have to pay for separate utilities, taxes, insurance, and maintenance for each property.
– Single-family homes have more competition than multi-family homes, not only are you competing with other investors, but you’re also competing against retail home buyers.
Pros of investing in a multi-family home:
– Multi-family homes generally have higher cash flow than single-family homes, since you have multiple sources of income and lower expenses per unit.
– Multi-family homes have lower vacancy risk than single-family homes since you can still generate income even when some units are vacant.
– Multi-family homes have higher economies of scale than single-family homes since you can share the costs of utilities, taxes, insurance, and maintenance among the units.
– Multi-family homes can have less competition than single-family homes since there are fewer retail buyers looking for them, so your overall competition will be less.
Cons of investing in a multi-family home:
– Multi-family homes are generally more expensive than single-family homes, which means you need more money and more debt to get started.
– Multi-family homes are harder to manage and maintain than single-family homes since you have to deal with multiple tenants and multiple properties.
– Multi-family homes tend to appreciate slower than single-family homes since they are more influenced by the income and expenses of the property.
– Multi-family homes offer less privacy and flexibility for the tenant, which can make them less attractive and harder to rent.
There you have it, as you can see, there is no clear-cut answer to whether you should invest in a single-family home or a multi-family home. The best option depends on your personal situation and investor preferences. You should weigh the pros and cons of each option carefully and do your research before making a decision. Investing in real estate can be a rewarding and profitable venture if you do it right.