Is it Better to Invest in Single Family or Multifamily Rental Properties?
Many people ask me the question is it better to invest in single family or multifamily rental properties? Many people assume multifamily properties are the better investment, but I invest in single family homes because they give me great returns, are easy to find and easy to manage. I have 8 single family rental properties and each one is giving me over 20% cash on cash returns. I go through exactly how I get these returns in my complete guide to purchasing long-term rentals. However, many successful investors also invest in multifamily properties. I believe the better investment depends on what you are looking for and what you can buy in your market. Here is why I prefer single family homes better in my market.
I can buy single family homes below market value
The main reason I get great returns on single family rentals is I only buy properties that are below market value. Good deals are hard to find, but they are out there if you know how to find them. I try to buy properties at 70% to 80% of market value. Usually, the properties are cheap because they need work or have very motivated sellers. Not only do I make money as soon as I close, because I bought the property below market, I almost always add value through repairs or improvements as well.
I have purchased rental properties that were REOs, short sales, fair market sales and estate sales. There are many ways to purchase properties at below market value. Some of the keys to buying properties at below market value are making offers quickly, having cash to purchase properties or strong financing and having a good reputation for closing on properties.
I wrote an article here, on exactly how I am able to find single family properties at below market prices.
Single family versus Multifamily complexes
In my area we do not have a lot of multifamily housing, so single family homes are much easier to find. I can find much better deals on single family homes than I can on larger multi unit projects, simply due to supply and demand. I know in some areas, multi-unit houses produces great returns, but where I am at I can actually make a better cash on cash return by purchasing and renting out single family homes then I can with multi family.
There is no way I could make over 20% cash on cash returns with multifamily, I have to pay to high of a purchase price for multifamily. If I were to buy single family properties at market value, I couldn’t make 20% either, but there are so many more single family properties out there, that there is a much better chance of getting a great deal on single family.
Single family homes are easier to manage
I feel single family rentals are easier to manage than larger complexes. With a single family rental I do not have to pay any utilities, the tenants pay them all. In multi-unit properties the landlord is usually responsible for the water and sometimes electric and gas as well. Many tenants feel a single family rental is their own home, not just an apartment or place to live. They usually take good care of the property and even fix and repair items themselves. They also tend to stay longer and renew their leases year after year. My parents have had a single family house rented to the same family for 12 years! Here is an article on how to find a great property manager.
Single family homes are less expensive to buy
Single family homes are usually less expensive to buy than large complexes with multiple units. The large complexes bring in more rent, but because of that they are much more expensive to buy (at least in my area). With a single family home the down payment and repairs are usually less than multifamily properties and the maintenance is usually less as well. Here is an article on how to buy property with little money down.
Appreciation is higher on single family homes
Single family homes historically appreciate more than multifamily properties. Multifamily properties are valued on the rents coming in and condition, while most single family homes are valued on supply and demand of owner occupied buyers. If rents go up in an area, then multi-family housing prices will rise as well, but only if the rents are raised to meet market rental rates. However, I feel you should always invest for cash flow and any appreciation is a bonus.
Conclusion
I am going to keep buying single family homes because I can get better deals, I can manage them easier, they appreciate more and they require less cash to purchase. In some areas it may make more sense to buy multi-family housing, depending on what the returns are. mferguson
Many people ask me the question is it better to invest in single family or multifamily rental properties? Many people assume multifamily properties are the better investment, but I invest in single family homes because they give me great returns, are easy to find and easy to manage. I have 8 single family rental properties and each one is giving me over 20% cash on cash returns. I go through exactly how I get these returns in my complete guide to purchasing long-term rentals. However, many successful investors also invest in multifamily properties. I believe the better investment depends on what you are looking for and what you can buy in your market. Here is why I prefer single family homes better in my market.
I can buy single family homes below market value
The main reason I get great returns on single family rentals is I only buy properties that are below market value. Good deals are hard to find, but they are out there if you know how to find them. I try to buy properties at 70% to 80% of market value. Usually, the properties are cheap because they need work or have very motivated sellers. Not only do I make money as soon as I close, because I bought the property below market, I almost always add value through repairs or improvements as well.
I have purchased rental properties that were REOs, short sales, fair market sales and estate sales. There are many ways to purchase properties at below market value. Some of the keys to buying properties at below market value are making offers quickly, having cash to purchase properties or strong financing and having a good reputation for closing on properties.
I wrote an article here, on exactly how I am able to find single family properties at below market prices.
Single family versus Multifamily complexes
In my area we do not have a lot of multifamily housing, so single family homes are much easier to find. I can find much better deals on single family homes than I can on larger multi unit projects, simply due to supply and demand. I know in some areas, multi-unit houses produces great returns, but where I am at I can actually make a better cash on cash return by purchasing and renting out single family homes then I can with multi family.
There is no way I could make over 20% cash on cash returns with multifamily, I have to pay to high of a purchase price for multifamily. If I were to buy single family properties at market value, I couldn’t make 20% either, but there are so many more single family properties out there, that there is a much better chance of getting a great deal on single family.
Single family homes are easier to manage
I feel single family rentals are easier to manage than larger complexes. With a single family rental I do not have to pay any utilities, the tenants pay them all. In multi-unit properties the landlord is usually responsible for the water and sometimes electric and gas as well. Many tenants feel a single family rental is their own home, not just an apartment or place to live. They usually take good care of the property and even fix and repair items themselves. They also tend to stay longer and renew their leases year after year. My parents have had a single family house rented to the same family for 12 years! Here is an article on how to find a great property manager.
Single family homes are less expensive to buy
Single family homes are usually less expensive to buy than large complexes with multiple units. The large complexes bring in more rent, but because of that they are much more expensive to buy (at least in my area). With a single family home the down payment and repairs are usually less than multifamily properties and the maintenance is usually less as well. Here is an article on how to buy property with little money down.
Appreciation is higher on single family homes
Single family homes historically appreciate more than multifamily properties. Multifamily properties are valued on the rents coming in and condition, while most single family homes are valued on supply and demand of owner occupied buyers. If rents go up in an area, then multi-family housing prices will rise as well, but only if the rents are raised to meet market rental rates. However, I feel you should always invest for cash flow and any appreciation is a bonus.
Conclusion
I am going to keep buying single family homes because I can get better deals, I can manage them easier, they appreciate more and they require less cash to purchase. In some areas it may make more sense to buy multi-family housing, depending on what the returns are. mferguson