Landlords tend to own multi-family properties, but there’s also a reasonable number of landlords that own single-family rental properties, and who might think multi-family properties are a waste of time.
The formula to take care of every type of rental property will be different, and like everything in life, they will have pros and cons. If you don’t own either one, here you can get a basic panorama on both types of properties, and maybe figure out for yourself which one is the best option for you, no matter if you’re planning on selling, buying, or renting.
Here is a short list of the pros & cons of Single Family and Multifamily Rentals:
Single-Family Rental PROs
When talking about money, a single-family home will – most of the time – be cheaper than other real estate investment properties, such as multi-family homes. The single-family homes are set at lower prices, mostly when located in a popular area with high rates of stability and calmness; why? Because single-family properties are smaller, thus cheaper than other type or real estate properties, making them easier to purchase.
A single-family home is almost a synonym for stability and consistency, and if a family chooses one, then it would be tough for them to leave after just a few months. When people are looking for a classic single-family house, or want to rent it or sell it, it will always be to a family that’s willing to stay as long as they can. A good tenant screening will make this even more possible.
You don’t have to furnish with appliances
Appliances are not an obligation when you’re in the process of selling, renting, or looking for a single-family house, as potential buyers or tenants have their own appliances and would like to create their own design inside of their soon to be “home.”
More potential buyers
Single-family property rentals attract all kinds of potential buyers, no matter if they’re not a big family or the traditional type. People often seek single-family homes to fulfill a dream they might have had since they were little, or would like to have a spare room for guests or turn it into a studio.
Lower property taxes
This can vary from state to state, but there are places where multi-family residential properties are assessed at a higher rate for property tax purposes.
Single-Family Rental CONs
Theft and vandalism
Properties can spend a while without tenants, and in the meantime, it can get difficult to hire someone to take care of the property while it’s uninhabited. With no one around, single-family properties can be a target for theft and vandalism, a risk that is constantly taken in these cases.
Vacancy hits harder
When tenants finally decide to rent or buy a single-family property, income is at its highest at 100%, but if they decide to move out, there’s no money coming in. The sudden change and instant lack of cash flow can be a rough patch to get over.
More things to repair
Everything that breaks multiplies, thus there’s a larger quantity of roofs that can leak or more air conditioners that can stop working. You need to pay more attention to detail, as these make or break a home, and if it doesn’t feel like a home, then there’s a problem.
Multi-Family Rental PROs
You can pay your mortgage
If you’re a tenant and are renting out one side of a duplex, or triplex, then this can allow you to pay for the entire mortgage by splitting the cost of the mortgage substantially and live free. Living less expensively is possible if you decide to live in a multifamily property.
By owning a duplex or any multifamily property, the deduction of costs of repairs and maintenance will be easier to make, at least in the side you rent out, as the side you live in is your primary residence. Property managers or a tax professional can help you claim expenses, which can reduce your overall tax burden.
Only one location
When dealing with multifamily properties, you’re only dealing with one location that has it all. With multifamily properties, you only have to take care of one roof, one parking lot, and in general, only one place to do repairs. If you own many single-family properties, being up to date on all the details can be a bit of a hassle. Both can be lots of work, but in comparison, your mind might find a multifamily property easier to cope with.
Multifamily properties don’t deal with the fluctuation of property value like the home market. This means that investing in multifamily properties is like having a real estate investment with more stable long-term growth as what matters the most in this type of property is the cap rate, because it shows the return on investment based on the income. Multifamily properties are valued exclusively on how much income-generating potential they have.
Multifamily Rental CONs
Dealing with tenants
Patience is essential in multifamily properties, as all kind of tenants are living in the premises, some of them would be highly educated, and others may just not be careful on how they treat the door. Both sides of the coin are part of the job, but sometimes, getting some tenants to understand basic neighbor etiquette can be a tough time you might have to go through – like not getting the rent money on time. To prevent this, you need to know how to screen potential tenants, so you don’t end up surprised by any of their behavior.
Long vacancy time is common in a single-family property and a multifamily property, so you shouldn’t be surprised if you get a vacant unit in the latter. The bad side of this situation is that if you get a vacancy, you’ll have to cover the full cost of the mortgage on your own. In comparison, two vacancy months in a multifamily property is equal to a collection rate of 92%, while at the same time on a single-family property rental is of 83%.
Multifamily property tenants are more transient by default – or are first-time renters – which means that at the possibility of making a family, they will need to move to a larger space. Increased vacancies and expenses can be a bit higher than in the case of single-family properties
Hard to sell
Selling a single-family home can take a while, but potential buyers are always on the look for this type of properties. On the other hand, multifamily properties are harder to sell, as investors need to be interested in them, and it will not be as easy like a family looking for a home to live forever.