Investing in real estate indeed brings a substantial return on the initial investment paid. However, this is fruitful only when the investor has a specific strategy for investing in a real estate property. Having a proper investing strategy helps the investor in the future. It diversifies once they have gained experience. For most investors, the two most common real estate investment strategies are to target people from either single–family homes or multifamily homes.
What are single-family and multifamily homes in terms of investment opportunities?
Single-family homes as real estate as places, which have only one unit housing one family. These properties can be condos, townhouses, so on. Multifamily homes are properties with more than one unit that house more than one family. These are usually apartment buildings, duplexes, triplexes so on.
The question that every real estate investor has is which would be better in terms of investing in properties? To answer this, we now have to understand properly the differences and similarities between single-family and multi-family homes as two very distinctly different investment properties.
Similarities between Single Family Homes and Multifamily Homes
- Both Single Family Homes and Multifamily give you a guaranteed return for your investment. Both are able to generate at least a 1% return on the cost money, per month. This automatically leads to a positive cash flow. However, changes may occur if one decides to invest it for residential purposes and not as real estate investments. Banks are stricter in such cases. Thus, it is important to have an idea about the kind of investment one is doing. This makes it easier for them to navigate through the consequences.
- Both Single Family Homes and Multifamily Homes will give the owner several benefits. The benefits are in the form of Tax Deductions related to mortgage and Property Tax. This can be helpful to cut expenses. This makes it a great plan to invest in Single Family Homes or Multifamily Homes.
- An investment in such rental property requires the owner to pay high-interest rates, along with a down payment of at least 20%. This could result in higher expenses for the real estate investor. However, as mentioned earlier, this can also be tackled, if the investor chooses to invest it for real estate purposes other than residential purposes. Banks also tend to become stricter when investing in residential purposes as the risks are higher.
- These are certain similarities when investing in Single Family Homes or Multifamily Homes. An investor needs to do their research before making the correct kind of investment. Both these investments are beneficial in their own ways, but it is always advisable to go for the plan that suits you the best.
Differences between Single Family Homes and Multifamily Homes
Single Family Homes
The main advantage of a single-family home investment is that they are highly affordable. Since these types of properties have quite a low rental cost, they provide a highly affordable option for investors investing in single-family homes. It is important to know that the total cost of investing is not just affected by the cost of the property but also by many other factors. Like, the rate of insurance is very low for single-family homes since it only accounts for a single housing unit. Moreover, utility expenses are almost negligible for both the landlord and the investor since in single-family rental properties, the lease agreements always require the cost of utilities to be covered by the tenants most of the time.
Single-family homes are usually more appreciated than multifamily homes. Investing in single-family homes is; therefore, better since the lenders look into their value as compared to multifamily homes. While the value of a multifamily property resides on both the condition of the property as well as the overall rental income a landlord makes, single-family homes’ values are derived purely from the demand and supply they attract and there isn’t a lack in demand most of the times.
It is noticed, that people who rent single-family homes usually take better care of the place and consider it more of their own and also have proper and constant communication with their landlords at all times. Moreover, these properties usually have fewer turnovers as compared to other types of properties. There is also no doubt that managing a single housing unit is always easier than the daunting task of having to take care of multiple households.
Several Exit Strategies:
Single-family homes always have a better exit strategy. Investing in single-family homes does not mean that you are stuck with it forever—it is quite easy to sell them since they are more in demand to most investors, families buying their own house and even a lease to own option. In comparison, multiunit homes are difficult to sell.
1. High Rents:
The reason why many investors invest in multifamily homes is the high rental income. They can purchase a single property and successfully acquire a profit by multiple rents generated monthly from the multiple units. This makes for a desirable investment.
2. Vacancy Issues:
Since these properties are less costly, they are sometimes more in demand than single-family homes and therefore the chances of vacancies are always less. Moreover, even if one or two units are vacant, the investor can still generate income through the others.
3. Value Control:
Since the value of multifamily properties is dependent on rental income, the control of the value lies exclusively in the investor/landlord’s hands which keeps the investor motivated at all times.
In conclusion, it is quite difficult to decide which type of property—Single Family Homes or Multifamily Homes is a better real estate investment. Both have their unit investment trust pros and cons and in the end, it mostly depends on the investor’s budget, their preferences, and the level of involvement.