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Home · Property Management · Financing : Investors: Single Family or Multi-Family Properties?

by Sandy Shores, M & M Real Estate

Pros and consInvestors always ask what kind of property they should buy.

Many start the business thinking that a multi unit building is their best bet. My recommendation to them is to start with a single family house.

I do not invest in small multi family complexes. I prefer single family houses for rental units. I have had many investors that have experienced the best and worst of both types of properties.

 

I find that single family properties are easier to buy, sell, rent, own and manage than multi family units.

Single family units typically: (the following comparison is single family vs. small 4-10 unit multi family complexes)

  • are easier and cheaper to buy
  • are easier to get financed. Often times owner financing or creative financing is required.
  • require less money down, because they are often cheaper than multi family.
  • are easier to rent (provided they are affordable) as many don’t want to live in a multi family district.
  • are easier to sell, and sell quicker. Often because there is a wider audience for the single family unit. A multi family property is usually restricted to investor buyers.
  • appreciate more quickly than multi family units. Often this is due to the fact that the small multi family units are located in high rental areas with other such properties surrounding them. The value of the multi family is typically based on the amount of your rents. And often times rents are fixed to the rents on surrounding properties in the area.
  • rents are usually higher than multi family units (for the same square footage). Often in multi family there is price fixing. A tenant that has been renting from you for several years may be paying less rent than today’s market rent. Thus, you must be cautious in the amount of rent you charge for new tenants coming in, as they will be talking to your old tenants.

Multi family units can be more difficult to manage than single family units because multiple tenants of yours are living in close proximity to each other. This can cause problems:

  • As previously mentioned your tenants will talk to each other about how much they’re paying in rent.
  • If you have one disgruntled tenant. they can wreak havoc with your other tenants.
  • If one difficult tenant is breaking your rules, their bad habits can spill over to your other tenants.
  • If this tenant begins breaking the law, it can carry over to your other tenants.
  • Or you may find your tenants calling you regularly to report a difficult tenant. It can turn into a nightmare!
  • I don’t care to have any of my tenants living close to each other because it gets very complicated

In my opinion small multi family units require micro managing. They are often more difficult to manage in that often they are lower priced rentals. Thus, it becomes more difficult to collect rents. Payment plans often must often be set up with tenants. And the landlord must be at the property more often than a single family unit.

Often the cash flow is more than in single family units. But, often the risk is higher. And often the vacancy rates and eviction rates are higher. I prefer to take my money and divide it between multiple single family units, located away from each other.

Let me twist this a different way though: if you have only one single family rental and it is empty, than you have 100% vacancy. But if you have a multi unit complex, and 1 unit out of 4 is empty you only have a 25% vacancy. That’s why I like to own multiple single family units.

I buy, sell, rent, own and manage single family rental houses. And I prefer them to small 4-10 unit multi family complexes.

I also do not buy condos or townhouses. There are associations that govern them, that can become rather difficult to deal with. And there is one more hand in your pocket, taking money away from you, the association fee. No thank you! (NOTE: PLEASE REMEMBER THIS POST IS WRITTEN BASED ON MY EXPERIENCES IN REAL ESTATE INVESTING HERE IN MELBOURNE FLORIDA. THIS INFORMATION MAY VARY DEPENDING ON THE AREA IN WHICH YOU YOU ARE LIVING AND YOUR CURRENT MARKET CONDITIONS.)

But commercial property specialist Sean Dresdnin of Ohio begs to differ:

I applaud some of the points Sandy made, but offer a few devil advocate points as well:

Multi-Family buildings can make your management more streamlined as you deal with 1 roof, 1 water heater/boiler, etc…

You mentioned the vacancy rates, which is quite true… 1 vacant single family = 100% whereas 1 out of 10 units for instance = 10%… Now if you hold true to the maxim of buying 10 single family properties around town, you are going to deal with:

1) More spread out management

2) Difficulty getting financing (especially in today’s market) (i.e – 10 individual loans versus 1)

3) Expanding on the financing problem also leads to the rebuttal of the point of less money down (i.e. 5% versus 20%) but again, if you are comparing 10 single family properties at 5% down payment versus 1 multi-family property at 20%, I think you’ll find a dramatic difference.

What do you think? Share your expertise with other investors by posting a comment below.

Sandy Shores is with M & M Real Estate in Brevard County, Florida, providing Residential, Investment & Relocations, serving all of your buying, selling and investing needs in Brevard County Real Estate. She also buys, sells, rents, owns & manages investment property.

Sean Dresdnin is with Pappas Realty Company in Akron, Ohio, and handles all aspects of Commercial Real Estate including, Retail, Apartments, Multi-Family, Office, Industrial, Vacant Land, Businesses, and Shopping Centers.

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  • In today’s market it would be interesting to see which type property has held it’s value. I just sold a 12 unit at a 6.5% cap rate….in other words, pretty much full price. I wonder how many single family houses are selling for full price.

  • As a realtor and an income property owner, I tend to go with 2-4 unit buildings. You need to put in less cash on the conventional loan vs a commercial loan. The second reason I prefer units vs. single family homes is that with a home you cater to families. Not that I do not like families but children, pets, etc., can create havoc with a home. We have 1 to 2 bedroom units maximum and after what I call “IKEA” them up, making them look trendy and upscale, we occupy them with Gen “X’er’s”, young professionals, either single or a couple who love the place and stay for years plus respect it. This type of clientele like living near each other and in fact one of our buildings, a 4 unit, has become like a upscale college dorm where all the tenants know and like each other and have communal barbeques in the communal yard. Our properties are pretty hands-free. The third reason is as some people state above, with a SFR if you have a vacancy you have no income coming in but with units, with one vacancy you still have the income coming in from the others.

  • My Response is to Sean Dresdnin,

    Do you invest in multi family units? You made some good points. I agree that you in multi family you are dealing with one roof. But, here in most 4-10 unit complexes each unit has their own water heater, A/C unit, furnace, stove, fridge, toilets, misc (same as single family). Thus you are dealing in 4-10 separate sets of appliances, toilets, etc, as in single family rentals.

    I agree with your vacancy rates. If you only have one single family and it’s empty then you have 100% vacancy – not good!

    I prefer the 10 single family properties, because they are spread out. I don’t like my tenants living close to one another. We have hurricanes and tropical storms here. What a about a fire? If one comes and takes out my multi unit complex then I’m done, but unlikey that it will take out all 10 of my single family houses in a 5 mile radius.

    A multi family complex will always be in a rental area. What if your multi unit neighborhood becomes blighted or depressed? You have 1 property, so value drops on all 10 at once and maybe you begin to lose some of your tenants. All 10 single family units houses are not likely to all be in areas that become blighted.

    I do agree that I need 10 loans for my 10 houses, and more money must be put down to buy 10. In that respect, you can get into the multi unit for less money down. Often your interest rate is higher though. We usually find that rents are lower in multi family complexes and often it can become fixed (hard to raise with tenant squabbling).

    Here your rents are typcially higher on single family then on a 10 unit complex. (so you must carefully determine your rate of return on your initial investment on your 10 unit complex vs your 10 single family properties.) On the multi unit your market value is based on your rents coming in. Your multi unit complex will not appreciate as quickly, nor sell as quickly, as 10 single family rental homes. They are located in areas with owner occupants (helps keep your value up). And owner occupants and investors can buy them.

    I love dealing in investment real estate and am happy to discuss it anytime.

    Every investor is different. And each investor must determine what type of property suits his wants, needs, and goals. I do not advocate that a novice investor begin their real estate investing career with their first purchase a multi unit complex.

    I have found that multiple single family properties work best for me, as I don’t care to have all my eggs in one basket.

    Sean, Thanks for your point of view. – Sandy Shores, Melbourne FL REALTOR

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