Last modified on January 8th, 2016
By Alexis Hammond
With CD interest rates historically low, investing in real property is highly appealing today. Deciding whether to invest in single-family homes or multi-family housing properties is a topic that is heavily debated. There are definite advantages and disadvantages associated with each type of property.
Below are several similarities and differences for you to consider.
Number One: The Rental Pool
The current economic climate and shifting demographic of renters in the US means more people can afford to rent an apartment or condo than a single-family home. Many baby boomers and senior citizens are choosing to down-size from a personal home to an apartment with exceptional amenities and easy access to transportation and medical facilities.
On the flip side, multifamily properties are not as easy to sell as single-family homes. If you think you may sell your investment property in a few years, single-family homes may sell quicker than an apartment building or large complex.
Number Two: Managing and Staffing
Another advantage of investing in multi-family properties is staffing requirements. Since all units are located in the same general area, responding to repair and maintenance requests is usually less time consuming and requires fewer workers. In some situations, negotiating contracts with outside firms for repair and maintenance can eliminate the need for extra staff. Generally speaking, volume and preventative maintenance contracts lower per service rates. Theoretically both property types have similar expenses when compared unit-to-unit.
Something else to consider is the amount of repair and maintenance required to keep an individual home in working condition. Some experts suggest that a stand-alone home takes more time and money to keep in working condition because single-family homes are usually larger than apartments and have more people living in them.
This isn’t necessarily true for every situation and a comprehensive pre-purchase inspection will give you more information to base a decision on before making an offer on any property.
If you’re planning to self-manage several single-family properties, you might find that each home has a different type and brand of air conditioner, water heater, dish washer, roof and other appliances or construction materials.
A typical apartment building has the same appliance styles and brands throughout – which makes ordering replacement parts less expensive and easier most of the time.
Number Three: Cash Flow and Revenue Management
If you plan to either buy a small complex or one single-family home, cash flow and revenue management considerations may make the decision for you. Like most investments, real estate investments demand that you measure your risk tolerance before making a commitment.
If you have a ten-unit apartment building and one or two residents cannot make their monthly rent payment, you’ll still have some revenue coming in to pay your mortgage and expenses. If you purchase a single-family home and the resident fails to make the monthly payment, you’ll have to use personal funds to cover the property mortgage, insurance and expenses.
Number Four: Troublesome Residents
Troublesome residents are problematic regardless of the property type. A resident who ignores property rules and disrespects neighbors can create challenges for landlords in both multi-family housing communities and single-family homes. The difference is that in a single-family home, management may be dealing with police and non-resident neighbors, whereas a rowdy resident in a multi-family community could result in conflict with other residents. Good residents may move rather than renew a lease. More serious issues with an apartment resident could affect several sources of revenue rather than just one.
There are advantages and disadvantages to investing in both types of rental property. Deciding which is best for you often depends on the amount of money, time and human resources you have available to take care of the property after the initial acquisition.