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Single-Family or Multi-family Rental Properties: Which Is Superior?

Rental Properties

For those unable to withstand the stock market’s volatility, real estate can be an excellent alternative. It’s also a better investment for investors who’re looking to take on an active role in increasing their capital, instead of passively putting their money into a fund for someone else to manage. The fact that multiple strategies can be successfully used is one of the greatest advantages about investing in real estate.

For instance, real estate investing moguls – Zhang Xin and Donald Bren both built their billion-dollar fortunes by developing several residential and commercial properties. In contrast, Sam Zell, the founder of Equity Residential, built his wealth by slowly acquiring an income-producing portfolio of rental properties.

Other real estate investors have also earned a lot from purchasing properties or house flipping for cents on the dollar (buying houses in disrepair and renovating them to sell them at greater cost). One such form of investment is in multi-family properties; let’s see why it’s one of many investors’ best options.

A Lot Easier to Finance, But More Expensive

In many cases, purchasing an apartment building as an investment is substantially more expensive than the cost to buy a single-family home. While a single unit rental can cost an investor a few thousand dollars, a multi-family building can go up to millions.

Initially, it may seem as though securing a one-family property loan is simpler than trying to secure funds for a million-dollar complex. However, the fact is, a multi-family property has more chances of being approved by a bank for a loan than a typical home. The reason is that multi-family properties consistently generate strong cash flows on a monthly basis. This remains the case even if a property has many vacancies or some tenants who don’t pay rent on time.

If a tenant moves out of a one-family home, that whole property become vacant. In contrast, a property with ten units and a single vacancy is considered 10% vacant. Consequently, the chance of foreclosing on an apartment building isn’t as high as a one-family rental. All of this translates to a less risky investment for a lending institution; it can also result in a better interest rate for the landlord.

Growing a Portfolio Doesn’t Take Much Time

For property investors who intend to build a relatively big rental units portfolio, multi-family real estate is a great option. Acquiring an apartment building with 20 units is less time consuming and more efficient than buying 20 different one-family homes. With the latter option, an individual would need to work with 20 different sellers and perform inspections on 20 houses, with each of them a potentially at different locations. This route would also need an investor to open 20 separate loans for each property in certain cases. By simply buying one property with 20 units, this headache can simply be avoided.

You’re in a Situation Where Property Management Makes Financial Sense

Certain real estate investors don’t enjoy the hassles of property management and appoint a property management firm to take hold of their rentals’ day-to-day operations. Typically, a property manageris is paid a portion of the monthly income that a property produces. Their responsibilities may consist of screening and finding tenants, maintaining the property, handling evictions, and gathering rent payments.

Many investors who own one or two single-family homes don’t have the luxury of contracting a manager from outside since it’s not a financially sound decision considering their small portfolio. The amount of money that multi-family properties generate every month gives their owners room to leverage property management services without substantially cutting into their margins.

The Bottom Line

Like stocks, investing in real estate enables an individual to be successful using a variety of different strategies. Owning a collection of rental properties is one of the most popular ways to invest in real estate. One-family rentals are properties consisting of just one residential rental unit, while apartment complexes that have more than one rental unit are referred to as multi-family properties. There are a plethora of advantages to owning multi-family real estate. These comprise the ability to grow one’s rental property portfolio quickly, and access to better and easier financing opportunities. So go ahead and invest in multi-family properties. It’s worth it.

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What to Know Before Investing in Multi-Family Properties?

Investing in Multi-Family Properties

People often believe that investing in real estate and the stock market will reap the same benefits, but that isn’t the case. Make no mistake; the stock market is infamous for its volatility while the real estate market is known for its lucrative cash returns. People who like to have a role in growing their capital are ideal for the real estate market – they are the ones in charge of cash flows and investments, and best of all, they can come up with their own marketing strategy to give them an edge over their competition.

Investing in rental property is the preferred investment for investors who like to have an additional source of monthly income while also growing the value of their property. If you are planning to invest in residential property, then there are two types of properties you should know about; single-family (typical houses for rent) and multi-family properties (large residential complexes.)

Investors who are looking to take their real estate business to the next level could invest in multi-family properties as it’ll allow them to produce more income while building net worth much faster.

If you are planning to invest in multi-family properties, then these are the things you should know before you step into the market.

Location Matters

Like any other real estate investment, the location of the property matters, in fact, it is of the prime importance in multi-family properties. How is the neighborhood? Is the area close to the freeway or the subway? Does it provide quick access to downtown areas? It the area in itself popular? Is it close to educational institutions? Is it close to a park?

Also consider other demographics like the size of average houses, age of the residents, local economic activity (availability of new jobs in the area), and, most importantly, the crime rate of the area. All this should be taken into consideration before investing in multi-family properties, as tenants will make sure to consider everything mentioned above before moving into the building.  

Condition Of The Property

The physical condition of the multi-family property must also be assessed before investing in it as it can affect your tenants – becoming a liability for you in the future. If you’re planning to invest in an apartment building, then you should inspect a few things. Like the roof and its condition, the building’s central heating and air conditioning system, the plumbing and electrical works, the condition of the elevator, and most importantly, is the foundation of the building concrete?

You should also calculate the expected future repairs or renovations that you might incur in the long run. Everything should be considered before investing in a multi-family property as it can help you in negotiating the right deal when acquiring the property and also when you’re planning it for further investment.

Along with these factors, you should also consider the competition in the area along with the vacancy rates. Investing in multi-family properties could have huge monetary benefits if the planning is done flawlessly – making it the investment to take your real estate business to the next level.