Single-Family VS Multi-Family Homes

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Single-Family VS Multi-Family Homes

When investing in residential real estate, one of the first decisions to consider is whether to invest in a single-family home or a multi-family property such as an apartment building. As single-family and multi-family are considered residential properties, they can generate rental income and potentially appreciate over time. However, they differ in what real estate investors can expect from their investments.

Single-family homes, as the name suggests, are properties designed to house a single family and are usually smaller to accommodate the needs of only a small family. These are typically single, or double-storied houses found in most suburbs in populous cities. Multi-family homes, on the other hand, have been designed to house multiple families or tenants within the same building. These are usually apartments or condominiums that have ample space for multiple tenants with some shared areas like lobbies.

 

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We’ve prepared a comparison table below to show how they compare to each other in key areas. However, note that this can change based on market conditions, location, and more factors.

 

 

Single-family

Multi-family

Suitable for Owner occupied

They are suited for investors looking to own their own house while holding onto an appreciating asset. They can be used to collect rental income from a tenant as well.

Investment

They are most suited for collecting rental income and also potentially appreciating.

Risk profile Low Risk

They require lower capital investment and are easier to manage and maintain as they only have a single unit and tenant.

High Risk

Managing multiple tenants and units can be more costly and complex. The capital investment upfront is usually higher, meaning the investor could stand to lose more should things not work out. On the flip side, the risk from vacancies is reduced due to having multiple tenants from which to draw a stable cash flow.

Price Higher

Based on a per unit basis, the purchase cost per unit is higher in homes as only a single unit exists to distribute the cost. 

Lower

Thanks to having significantly more units, the overall purchase price is distributed amongst many. Additionally, property management costs are typically lower overall due to economies of scale.

Rental Income Lower

While a single-family home may generally command a higher rent from one unit, this is offset by the potential of receiving rental income from multiple units.

Higher

Regardless of individual unit pricing, as owners collect rent from every tenant, the rental income is almost always higher in multi-family properties.

Management Simpler

As owners only manage a single tenant and building, it is generally much easier and less time-consuming.

More complex

Having to manage multiple tenants across multiple units increases the likelihood of management involvement drastically, requiring more overhead and time to administrate effectively.

Property appreciation (This is influenced greatly by outside factors) Faster

While both have the potential to appreciate, single-family properties tend to do so a little faster because they are usually the more in-demand housing depending on location and market.

Slower

While still having the potential to appreciate quickly, due to the scale of the investment, they may appreciate a little slower than single-family properties.

Vacancies Longer tenancy period

Tenants renting a single house tend to stay longer as they are usually families looking to settle down within a neighborhood and enroll their children in a nearby school. They value their privacy greatly and seek a single building to live in.

Shorter tenancy period

Tenants living in an apartment tend to stay for shorter periods as they are usually single or couples not looking for a place to settle down. They tend to value freedom and proximity to work, restaurants, and other services.

Exit More Options

Due to the smaller investment capital; it is easier to find a buyer to divest the property to. Current tenants may be inclined to purchase the property as well.

Limited buyer pool

As multi-family properties tend to be a more expensive investment, with a lot more considerations for an investor, there is usually a limited pool of buyers who may consider investing in them. It can take time to find the right buyer.

 

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The above table gives you some key points to consider when deciding on a suitable strategy for your residential real estate investment objectives. Each point can differ depending on outside factors like location, property characteristics, market condition, and more, so only take these as a rule of thumb rather than being set in stone. As always, detailed research before any investment is strongly recommended, as well as speaking to a qualified financial advisor.

Once you’ve decided on how you’d like to proceed with your residential investment, do consider talking to the team here at RE Investor News should you require assistance in sourcing financing for your deals. Our veteran team of real estate specialists is specialized in matching investors with the most suitable, credible lenders to help get their investment goals off the ground. Get in touch with us today!

 

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