Multifamily vs. Single-family: Which One Should You Choose?
The real estate industry offers various opportunities to build wealth, some more effectively than others. Understandably, investors want to weigh their options to find the best vehicle for their capital.
Are you deciding between Single Family or Multifamily Homes? Read on to find out which rental property wins in your book.
The Basics: Difference in Structure Single-family properties are self-contained structures with no shared walls with another residence. On the other hand, Multifamily properties contain separate residential units, called duplexes or triplex, within a single structure.
As the name suggests, single-family properties house just one family unit, while multifamily can have more. The difference in structure reveals fundamental differences in these investments: tenant capacity and its accompanying advantages, upkeep requirements, and property cash flow, among others. Capital Requirement, Investment Returns, & Strategy
The bigger the property, the more investment it needs. This is true, but only in some cases.
By their sheer size, multifamily properties require more total investment. Under syndication, however, general partners like Makaan can assist multiple investors in pooling their capital and funding a multifamily property. This evens out the scale for capital requirement between single and multifamily properties. Returns vary significantly between the two. Single-family relies on one set of tenants for cash flow, while multifamily can enjoy lower risk from higher rent income.
Since single-family properties are active investments, their growth potential is wholly dependent on the strategy and know-how of their owner. In comparison, passive investments like multifamily gain added advantages from being managed by real estate professionals. Ultimately, the better option here depends on the investor’s income targets, preferred investment approach (active or passive), and capital for investment.
Risks: Tenants and Occupancy
When building relationships with tenants, single-family properties are at an advantage. Investors enjoy managing fewer people, often becoming long-term, desirable tenants who take good care of the property and treat it as their home. Under multifamily properties, investors are far removed from the tenants. An administrator looks after the community, addressing tenant concerns and ensuring low occupancy rates. While both properties contend with turnover rates, single-family properties are significantly more vulnerable to loss of tenants.
Which investment is better?
Multifamily properties stand to deliver more return on investments. With more units to rent, the possibility of syndication, and overall potential savings from professionally-managed investments, multifamily offers so much room to scale. These same features also make the investment less vulnerable to changes in the market. Some prefer simplicity in structure and the hands-on approach to single-family properties. Ultimately, the better option is what aligns with your goals.