Contrasting Multi-family and Single Family Rental Investment
Let’s contrast investment in multi-unit properties with two to four units with single family home investments to see if there’s a compelling reason for you to re-orient your strategies. Of course, some of these will vary with the market, and all of the items discussed could be more or less desirable for you based on your personal preferences.
Multi-unit Advantages
1. Economy of scale or consolidated overhead: Generally, these properties are under one roof and will concentrate your need for repairs and services to a single location for multiple properties. It’s economy of scale and will reduce per-unit overhead.
2. Consolidation of management duties: Why drive to four divergent locations for management activities when you can interact with your tenants and manage four units in one location?
3. Better rent-to-land ratio: For a rental property, the land underneath is a non-performing asset. If you have four single family properties, each on a half acre, you’ve purchased two acres and pay taxes on that amount of land. If you purchase four units on less than an acre, you have more cash flow on less land and lower taxes usually.
Single Family Advantages
1. Lower landlord utility costs: In multi-unit properties it’s common for the landlord to pay for some utilities, such as water and trash, and possibly others. A single family rental home is almost always set up for the tenant to pay all utilities.
2. Lower maintenance costs for some items: Most single family home renters are expected to take care of their own exterior maintenance like cutting the grass, raking their leaves, etc. In multi-unit situations this is usually the responsibility of the landlord.
3. Higher rent: On a per-square-foot basis, you can in many cases command a higher rent for a single family property, as people will pay more for a detached home with its own yard.
4. Wider market at resale time: When you are ready to sell a single family home, you can do so to either an investor or a retail buyer, usually commanding a better price.
Those aren’t all of the differences, but they’re something to think about, especially if an investment opportunity arises and you need to make a decision as to changing your focus.
Let’s contrast investment in multi-unit properties with two to four units with single family home investments to see if there’s a compelling reason for you to re-orient your strategies. Of course, some of these will vary with the market, and all of the items discussed could be more or less desirable for you based on your personal preferences.
Multi-unit Advantages
1. Economy of scale or consolidated overhead: Generally, these properties are under one roof and will concentrate your need for repairs and services to a single location for multiple properties. It’s economy of scale and will reduce per-unit overhead.
2. Consolidation of management duties: Why drive to four divergent locations for management activities when you can interact with your tenants and manage four units in one location?
3. Better rent-to-land ratio: For a rental property, the land underneath is a non-performing asset. If you have four single family properties, each on a half acre, you’ve purchased two acres and pay taxes on that amount of land. If you purchase four units on less than an acre, you have more cash flow on less land and lower taxes usually.
Single Family Advantages
1. Lower landlord utility costs: In multi-unit properties it’s common for the landlord to pay for some utilities, such as water and trash, and possibly others. A single family rental home is almost always set up for the tenant to pay all utilities.
2. Lower maintenance costs for some items: Most single family home renters are expected to take care of their own exterior maintenance like cutting the grass, raking their leaves, etc. In multi-unit situations this is usually the responsibility of the landlord.
3. Higher rent: On a per-square-foot basis, you can in many cases command a higher rent for a single family property, as people will pay more for a detached home with its own yard.
4. Wider market at resale time: When you are ready to sell a single family home, you can do so to either an investor or a retail buyer, usually commanding a better price.
Those aren’t all of the differences, but they’re something to think about, especially if an investment opportunity arises and you need to make a decision as to changing your focus.