Buying residential properties to rent is a natural part of growing your home investment business. Whether you are an individual investor expanding your real estate collection or a business founded on real estate revenue, your choice of home investment will naturally impact both logistics and revenue in the years to come. In the modern housing industry, this leads to one very important choice each time you're ready to re-invest profits into a new residential property purchase: Single-family or multi-family?
Should you invest in a single-family home or put your investments into buying and managing a multi-family property? Today we're diving into the details of what investors should know about both types of properties before making a decision.
Single-family homes tend to embody the suburban reality. Many neighborhoods are inside quiet HOA communities. But many are part of pre-HOA urban sprawl as well. Single-family homes can be embedded in the city grid or in the roomy rural countryside.
Single-family homes are reliable and standard. But the choice naturally comes with its own pros and cons.
Many people gain their first rental home by renting a house they own. Others buy a second house just to start renting. Single-family homes are both easier to invest in and easier to sell on the housing market to private buyers.
Renting one residence generates a rental income. A single-family home traditionally rents for more than an apartment, condo, or even a duplex of a similar size. Consider that tenants are also paying for access to the yard and for the ambiance of the neighborhood. Larger individual rental payments are typical for single-family homes for these reasons, and because each lease must support the full upkeep cost of the property instead of distributing the rent over multiple units.
For your landlord experience, a single-family home involves screening, selecting, and interacting with only one family per property. This can be seen as keeping things simple and ensuring that your focus is completely on your tenants during each visit or virtual meeting.
Property maintenance can only be streamlined so much. You can use the same services and equipment for maintenance, but ultimately each set of maintenance only repairs and upkeeps one property and takes care of one family. A larger collection of single-family homes is ultimately less maintenance-efficient than an equal number of homes as a multi-family property.
One of the biggest investment-risks of a single-family home an empty house. When tenants aren't present and paying rent, you're on the hook for the entire mortgage, property tax, and utility expenses for that month. An empty single-family home is a cost burden instead of an income-generating asset.
The single-family home market always has stacked competition. No matter the conditions in your local market, there are likely a few dozen similar rental homes in the area for seeking tenants to choose from. Making your rental home move-in ready and taking enticing photos have become essential, even as open house events phase-out of style. Be prepared for an intensive turnover process to win tenants before there are long laps without rent payments for the house.
Lastly for single-family homes: be aware of HOA neighborhoods. When you buy a single-family home, it might be in a neighborhood controlled by an HOA (home owner's association) with special rules about what can and cannot be done with the house. You have just become a member-owner. Not only are you limited in home renovations and exterior changes, but you may be subject to fines for the misbehavior of tenants. You may not even be allowed to rent if the HOA's renters-to-owners resident ratio has already been reached.
Now let's talk about multi-family properties. These include everything from duplexes to skyscraper apartment buildings and all multi-family properties in between. From two families to hundreds, a multi-family property can be a smart home investment - if you're ready to take on the challenge. Here's what sets multi-family investment apart from single-family homes.
First, choose how many multi-units you want to invest in. You might specialize in renting duplexes or you might have your eye on a cozy local apartment building with great potential. Determine both the number of tenants you can wrangle and the number of units within your budget.
Usually, an apartment or -plex home will go for a lower rent-per-sq-foot and rent-per-bedroom cost compared to single-family homes. However, it's important to look at the cumulative rent for the property, as well. Multi-family properties offer an overall higher monthly income, but also cost more in monthly overhead.
If you're a pro at tenant management or have a good management team on your side, then multi-family investment becomes more possible. Be prepared to handle several families per property and to cater to their needs while considering the impact on all tenant-families before each decision. Be prepared for multiple screenings, turnover schedules, and rent payments. Not to mention getting to know the actual people who live in your building.
Another big change between single-family and multi-family home investment is maintenance concentration. When you fix the roof on a multi-family building, you've fixed all tenant roofs. But if a leak springs in the pipes, it's also possible that every unit will suffer water damage. Consider how maintenance applies to the entire building in many cases. This can mean cross-unit damage or a convenient economy-of-scale.
A unit that spends time empty in a multi-family property is less costly than an empty single-family home. This is because the cumulative rents of the other units can support one or two empty units at a time - without upkeep costs creating a red balance. Multi-family properties give you more time and leisure for tenant turnover because the financial equation is not all-or-nothing.
Last but not least, buying a multi-family property could potentially cover your own living requirements as well. If you enjoy the property, then you can also enjoy one of the units effectively rent-free while the other units support the upkeep and build revenue for property improvements.
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