As an investor, one of the biggest questions you will have to ask yourself is if you’re going to invest in single family or multi-family rental properties.
Let’s analyze single family vs. multi-family rental properties, so you can make the very best choice when choosing your next Real Estate Investment.
Advantages of Investing In Multi-Family Rental Properties
One of the biggest advantages to investing in a multi-family rental property is that you will enjoy more property, while having less land, which is an advantage since the land under the multi-family rental is considered to be a non-performing asset.
Multi-family properties also offer good cash flow and the ability for an investor to consolidate all of their rental units on one parcel of land, maximizing the performing asset while minimizing their on-going costs.
Instead of owning multiple rental properties in one city or across United States, all of your rental units are in the same building and this means that the multi-family building also has one crawlspace, basement, gutters, yard and other ongoing expenses that need to be taken care instead of multiple expenses with more than one property.
Cons of Owning A Multi-Family Rental Property
Yes, multifamily rental properties can be a great investment, but as with any real estate investment they also come with their share of cons including the following:
- Can Require More Property Management – Most multifamily rental properties in the real estate investment world are regarded as “transitional properties” because, renters typically choose an apartment, condo, townhome or duplex, as a short term rental property while they are saving for a home that they plan on buying or they are planning on moving into a long-term rental.
- Intense Competition – Over the last two years multifamily rental properties have been in more demand than ever before because renters across multiple generations, including Baby Boomers, are renting instead of buying and with increased demand on multifamily rentals the competition with other owners has gotten more sophisticated. Some owners are offering their tenants more incentives like free WIFI, gym memberships and other incentives to renew their leases which have made it difficult for other owners to retain their renters.
- More Costly – Multi-family rental properties are more costly to buy than single-family rentals because fewer multifamily rentals have been constructed across the United States since the real estate crash of 2007, driving up prices, making it more difficult for real estate investors to find multifamily rental properties.
Advantages of Owning Single Family Rental Properties
Single family rental properties are one of the best investments you can make. Especially over the last five years, thanks to low mortgage interest rates and excellent price across United States millions of investors have been able to get started with investing in real estate by purchasing an affordable single-family home. Even Baby Boomers and people who may have lost their homes to short sale or foreclosure in recent years want to rent single-family homes, because living in an actual house for most people is what they consider to be a home rather than living in an apartment or a multifamily rental property.
Some of the advantages of owning a single-family rental property include:
- Rental Income – This is by far the biggest advantage of owning a single-family rental investment property since if you rent a typical single-family home anywhere across the United States for $1000 per month you will enjoy at least an additional $12,000 annually in your bank account. Although this income figure is optimistic, the reality is that even if you keep your rental property occupied for let’s say half of the year, that’s still an additional $5000 or more income from that rental property.
- Increase In Property Value – Aside from the rental income that you enjoy from owning a single-family rental property the next advantage is that you will enjoy an increase in the value of your rental property. Property values vary depending upon area, but over the last two years we’ve seen property values increase across the United States and owning single-family homes has been an investment that even long time investors like Warren Buffett have sought out over other traditional investments.
- Sweat Equity – There’s no denying that one the biggest advantages of owning a single-family home is that you also enjoy the advantage of sweat equity, because any time you put money into property it will ultimately increase the value of your single-family rental and enable you to charge more for rent as well.
Cons of Owning a Single Family Rental Property
Single family rental properties are an excellent asset. The only real con or disadvantages to this type of rental property is that all of your assets are concentrated in one small area. So if property values decline in that area, your property value may decline as well. Or if the area where your rental property is located sees an increase in crime, this could also affect the ability to rent your single-family rental for long periods of time.
Single Family Homes Are In High Demand
Yes, there are pros and cons to examine before making any Real Estate investment, but in the current real estate market, it’s easy to see why single-family rental properties are in high demand.
If you would like to learn more about both Single and Multi-Family turn-key real estate investments call us at 248-820-5060.