What is Better? Investing in Multifamily or Single Family Homes...Part 1
For many real estate investors, the most common question is: which is the better investment: single gamily homes (SFH) (detached house, condo, townhouse) or multi -family homes (MFH) (duplex, triplex, four plex). This week I will list the advantages and disadvantages of investing in single family homes.
Advantages of Investing in Single Family Homes
Depending on the city, typically appreciate faster than MFH
Generally a broader range of potential buyers (when it's time to sell)
More liquid - SFH Can often sell quicker, even in a down market again due to a broader range of potential buyers
Only have to "deal" with 1 tenant, not many.
Tenants don't argue with other tenants because they are the only ones living there!
Easier to get the tenants to pay for all the utility bills again because they are the only ones using them
Some argue that you get a better "quality" of tenant in a SFH.
Financing your investment property is often simpler and easier to get.
Disadvantages of Investing in Single Family Homes
The biggest disadvantage as an Investor is they rarely cashflow as well as a multi-family home
Can be "riskier" as there is only 1 tenant to pay the rent. If they vacate, who pays the mortgage, bills, utilities, etc? You do!
No economies of scale with a SFH. Most Project Manager's will offer discounts on a per unit basis if it's a MFH, these discounts won't apply on SFH.
Next Friday I will contrast these with the advantages and disadvantages of Multi-Family Homes as an Investment:
What is Better? Investing in Multifamily or Single Family Homes...Part 2
Last Friday I discussed the advantages and disadvantages of investing in single family homes. In today’s Friday Minute, I want to share some advantages and disadvantages of investing in Multi-Family homes (MFH).
Advantages of Buying Multi-Family Homes
Greater potential for better cash flow because there are many more units purchased for a slightly lower price per unit.
More than 1 rental coming in to help cover your operating costs. Minimises risk to pay operating expenses if you have a vacant unit.
A broader range of tenants to choose from because the per unit rental cost is usually less than a SFH
If 1 unit becomes vacant, you can do maintenance work (paint, clean, etc), but still collect rent from your other units
Economies of scale: Your project manager will likely charge you less (as a percentage of the rent) on a 2 or 3 unit than a SFH.
Typically, your utility costs will not be 3 times the amount (if it's a 3 unit MFH) even though there are 3 tenants living there.
The price on a per unit basis is less expensive than a SFH
Generally, your rent to price ratio is higher on MFH than on SFH, which equates to more cash flow.
Disadvantages of Buying Multi-Family Homes
Maintenance tends to be higher as there often is more wear and tear with more people living in the building (more appliances to service or replace and often more tenant turnover)
Tenant placement costs tend to be higher as MFH's often have more turnover than SFH. This is just my personal experience... I don't have stats on this other than our own personal experience.
Tend to appreciate slightly slower than SFH
Financing can be more onerous.
As you can see there are as many advantages as there are disadvantages to investing in SFH or MFH. My preference is MFH because of the flexibility, economies of scale and better cash flow.