What is a Better Investment: Single-Family or Multi-Family Unit?
In making decisions to invest in real estate, you may face a choice between single-family property versus a multi-family home. Which one is a better investment—single family unit or a multi-family unit? What are the differences between the two and what are the pros and cons?
In this article, we will go through a comparison between single family and multi-family investing to help real estate investors form decisions in property investing.
What’s the main difference between single family and multi-family units?
A single family unit is a standalone house or detached structure built on its own land. It does not share any roofs or walls with other dwellings. It has its own utilities (water, heating, electricity, etc.) that are not shared with other properties. A single family is typically lived in or rented by only one person, family, or small group that constitutes a single household.
A multi-family property, on the other hand, such as townhouses or apartments, have more than one unit and could either be a single building sharing walls and a roof or several connected structures built on a piece of land.
While it is more common for real estate investors to jump into single family units for a quick turnaround and profit from fix and flip projects, both types of properties have their own advantages and disadvantages.
Pros of Single-Family Properties
Demand: During the COVID-19 pandemic, there was a growing demand for single-family units due to health and safety reasons.
Preference for spacious housing: A study by the Joint Center for Housing Studies says that younger families prefer larger living spaces. Single-family units are typically more spacious than multi-family homes.
Privacy concerns: There is undoubtedly more privacy with a single-unit dwelling since there are no shared walls and close spaces unlike multi-family units.
Diversifying investment: It can be easier for a real estate investor to diversify investment properties across different housing markets with single-family units than investing in a multi-family property in just a single market. But it all depends on the goals and objectives of the investor.
Single-family units have higher demand and resale opportunities. The buyer pool for this type of property is higher than multi-family.
Returns: While some investors prefer single-family units for a quick cash return through fix and flip, those who rent out their single-family unit can also enjoy the benefits of a long-term return.
Pros of Multi-Family Properties
Higher income potential: investing in multi-family units for long-term rental gives investors a better cash flow compared to single-family homes since it lessens the vulnerability of having vacant units. Compare this to investing in a single-family unit where your rental income is dependent on only one tenant.
Affordable housing: if the real estate investor also acts as landlord and occupies one of the units, rental income from the multi-family property can be used to pay for mortgages and operating expenses.
Higher growth value and potential: When carefully managed, a multi-family property can be valued much higher than single family properties which are based on third party appraisers and comparative properties in the market. For multi-family properties, though comps are still being taken into consideration, valuation is based on the property income and historical revenue. With proper implementation of improvements and keen eye for rental pricing, multi-family property owners can strategically increase the value of the property.
Multi-family properties enjoy tax benefits, not to mention that you can also deduct maintenance and operating costs. As the property gets older, multi-family properties can enjoy benefits from real property depreciation and tax relief.
The Bottomline
Before embarking on a real estate investment, you need to properly weigh the risks and benefits of your proposed projects. Careful consideration of your personal goals and objectives both short-term and long-term must also be taken.
Whether you are planning on investing in a single-family or a multi-family unit, we have loan programs that are suited for your projects. If you’re looking to fund a short-term residential loan for a fix and flip project, our Fix and Flip loan has no minimum credit score requirement and rates start at 12.5%.
We also offer a 30-year long-term rental loan with a fixed rate that allows you to lock in lower rates for the long-term. For multi-family investments, we offer a Multi-Family Bridge loan for the acquisition, rehabilitation, lease-up or repositioning of 5-30 units multi-family properties.
Talk to us today or apply right away or click below to submit your request.
Longleaf Lending is a veteran-owned private lending company based in Texas, USA. Funding more than 600 hard money loans with US$125+ in loan value, our team provides Texas real estate investors with fast, efficient, and reliable financing whether for Ground-up Construction, Fix and Flip, Long-term Rental loans, or Multi-Family.
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