Single Family Homes Versus Multi-Units – The Great Real Estate Investor Debate

Investors have long discussed, argued and debated whether single family homes or multi-units are better for your real estate investing portfolio.

There are advantages and disadvantages for each and I will briefly highlight some of these below.

Let’s start with single family homes.

Single family homes are typically easier to finance, easier to find long term tenants for and easier to sell.

They are easier to finance because you can go to just about any bank and get a non-owner occupant loan, often with very little down payment. (But note, at the time this is being written lending requirements have gotten significantly stiffer.)

Single family homes are easier to find long term tenants for because many tenants prefer living in a detached home rather than sharing a wall and/or ceiling with multiple neighbors in a multiplex unit. Tenants also tend to stay longer because those who rent houses instead of apartments tend to have more stuff and they don’t like to move it as much.

Since you can sell your single family home either to another investor or to any family looking for a home, you have a very large market for liquidating your property.

Another advantage of single family homes is that there are lots of them. However, single family homes tend to cost more per unit and they are harder to justify an income approach to pricing.

If you looked at a cost per rental unit, single family homes tend to be much higher than the cost per unit of similar (in terms of bed/bath) multi-units.

Since single family homes are primarily built for and sold to owner occupants, they are not priced based on the amount of income that they will produce. Sellers tend to rely on appraisals to value their houses and not on the amount of rent their house can generate.

Now, let’s look at multi-units.

Multi-units are different (not worse) to finance and tend to have better cash flow since the cost per unit is usually lower than similar single family homes.

Multiplexes with more than four units usually don’t qualify for residential financing and require a commercial loan, which is a significantly different process than financing single family homes.

This can be an advantage or a disadvantage depending on your specific situation. It usually requires a larger down payment, but your personal credit score is less important.

Since the cost per unit is lower, you can usually realize better cash flow from the property when looked at on a per month basis compared to single family homes.

Since the number of people looking to buy multi-units is smaller than those looking to buy single family homes, you may be able to negotiate a better deal when buying, but it also may mean you need to give a better deal when selling. This may be a contributing factor to why the cost per unit is lower than similar single family homes.

Personally, I prefer single family homes, but I believe that multi-units have their place in the right portfolio.

Until my next post,

James

P.S. Access our extensive training library of well over 100 real estate investor courses and free consulting sessions with our Real Estate Investor Bronze Membership. Sign up now and be listening to a course in a matter of moments.

Related posts:

1. Is now the time to start investing in multi-family property? This is an article submitted to me for publication. While I do not focus on...
2. Price Per Bedroom – Another Tool for Analyzing Rental Properties Yesterday, while analyzing some local houses to determine their potential value as rental properties, I...
3. Finding Deals For Real Estate Investors – Getting a Real Estate Agent To Only Show You Potential Deals I’ve run a large national network of real estate investor websites and because of this,...
4. 4 Ways To Get Others To Find Great Real Estate Deals For You Here are 4 amazingly simple ways to get others to find great real estate deals...
5. Real Estate Investor Elevator Speech The following are examples of how you might answer someone who asks, “what do you...
6. Tenant Retention: Putting Together A Great Welcome Packet Finding quality tenants to occupy your rental properties for the long term is one of...
7. Free and Clear Data by City – Owner Financing Crib Sheet As many of you know, I am a huge advocate of owner financing especially in...
8. Finding Great Deals Through Real Estate Agents In your search for great deals, you are probably utilizing all of the resources that...
9. Real Estate Investing – The True Cost of Deferred Maintenance Have you ever wondered why some real estate investors can command top dollar for their...
10. The Goal of Great Property Management: Reducing Vacancies If you own rental properties then you are probably familiar with all of the headaches...