There are now more than 100 million renters in the US. This means that almost one in three people are now renting. As a result of this recent trend, property investors are now demanding higher rent than ever before. But, when it comes to investing in a rental property, a burning question arises. Is it more profitable to invest in single family, or multi-family complexes?
Both types of properties have their own distinct advantages. I will go over these below:
SINGLE FAMILY HOMES:
1. The Sale
It will be easier to sell a single family home as the buyer pool is larger. Both owner occupants and investors will be interested in a single family property. However, if you are trying to sell a multiplex, you will be limiting yourself to the investor buyer pool.
Single family homes are also more expensive than multi-family homes relative to rent. This often means more stability in sales price. Purchasing single family homes is better for capital stability and capital gains.
2. The Battle of Proximity
If you own a single family home in an area that is occupied by other multi-family complexes you will likely standout. If possible, many people prefer to have their own home, especially those families with children. Most importantly, pay attention to neighborhood in which you are buying, it will have a huge impact on the type of tenants you attract, as well as the home value appreciation you realize over time.
3. Parking
Renters like to have easy access to their own parking space. Rental properties that offer street parking typically find it harder to attract tenants. Furthermore, market rents are significantly less in similar properties when parking is the only difference. Rents will vary based on whether tenants get off street parking, covered, or garage parking.
4. Utilities
Normally, single family tenants will have to pay all utilities. Multiplex owners usually need to cover at least some of the utilities for their tenants.
MULTI-FAMILY HOMES:
1. Cash Flow
This one is simple. If you have more people paying rent under one roof, you are collecting more rents, and generating greater cash flows.
2. Risk
If you lose a tenant you will not lose 100% of your income from that property. You might have a couple of other people still renting the property which will help cover expenses while you find another tenant.
3. Consolidated Expenses
In multi-family complexes you only have to worry about the overhead associated with one property, as opposed to mowing lawns, fixing roofs, repairing fixtures and putting new carpets in multiple single family homes. This will save money and time.
4. Hire a Property Manager
With higher cash flows, investors are able to hire property managers to come in and take care of the day-to-day operations while they are out running their business. Whether it is a single family home, or multiplex, property management is a full time job – marketing, tenant screening, rent collection, legal agreements, property maintenance and tenant qualification. Time is money!
5. Build Equity Faster
No matter what the cost of the rental property, by increasing cash flows, investors are able to pay down mortgages faster, and as a result generate greater equity. This can be particularly lucrative when building equity in multiplexes, which are typically more expensive.
Did we miss anything? Which do you lean towards when investing in rental properties?
