Are Multi-Unit Properties a Better Investment Than Single Family Properties?
If you’re an investor and you have the cash to invest in real estate properties, would you invest in multi-unit properties? Or would you rather invest in single family real estate? There are a lot of multifamily apartment property listings made available to the public and that alone may convey valuable information to would-be investors. This article will simply point out the pros and cons for multi-unit properties vs several single-family units owned by one investor.
Multi Unit Properties | Is It A Better Investment?
First, let’s define a multi-unit property. It is also commonly known as an MDU or multi-dwelling unit which comes in a common form like an apartment building. A MDU has multiple separate housing units found in one building or a number of buildings inside one complex. And, of course, it is available for residential occupants.
- Has a greater Return On Investment
- Higher chance of being approved by a bank for a real estate loan
- Generates a strong cash flow on a more consistent basis, even if there are rental vacancies
- Probability of a foreclosure is low for rental properties
- Lending companies find it more appealing to invest
- As a landlord, you can implement a more competitive interest rate
- Building a relatively large portfolio takes less time
- Only one loan application is necessary
- You will have to deal with only one seller
- Less travel time, less buyer-seller meetings
- Travel to only one location (easier property management)
- Have the luxury of hiring a property manager
- Better and easier access to financing opportunities
- The income will help spread capital improvements and contribute to repair costs
- You can consolidate your overhead costs
- The gross and net rental revenue will greatly affect the value of the building
- You can raise the value of your property by raising the rent and cutting operating expenses
- Longer turn-around time for your ROI
- Cost of purchase is significantly higher
- Multiple turnovers, which can result in added expenses
- You will have to deal with multiple tenants if you’re a hands-on landlord
- Not that easy to sell in case you need liquidity
- Long-term Capital Appreciation value of the underlying land is slow and is also dependent on the monthly cash flow
- Greater threat of conflicts between tenants and nuisance calls from police
- Higher rate of evicting tenants can be stressful
- Dealing with legal concerns in evicting tenants can be tricky
- Maintenance costs are higher since tenants are not responsible for the lawn, parking lot, and other amenities
- Higher utility cost (water or trash) if units are not metered individually
Single Family Properties
Single family properties are buildings or structures with only one available unit. This can be a house or an apartment made available for residential occupants.
- You will have to deal with only one tenant per unit as a landlord
- You will have a more stable tenant in the form of a family unit
- It is easier to sell in case you need to cash in
- The appreciation value is quicker
- Minimal cost for capital improvements and repairs per turnaround
- Single turnovers leading to lesser expenses
- Evicting clients is tricky but has a lesser chance of occurring compared to MFPs
- Little to no maintenance cost since the tenant is responsible for it
- Tenants shoulder most, if not all, utility costs
- You can command a higher rental rate depending on the area
- Less likely to be approved by a bank for a loan or finance
- No rental income generated once vacant
- Probability of a foreclosure is high for rental properties
- Lending companies find it less appealing to invest
- You need separate loan applications for each single-family unit if you own several of them
- You will have to deal with multiple sellers (most likely one per property)
- It could be time consuming because you will have to travel to several different locations
- You don’t have the luxury of hiring a property manager if you have only one or two SFP’s
- Cash flow is irregular and slow depending on the occupancy and financial capability of the lessee
- Cost for repairs is dependent on your rental income
- Multiple SFU’s separate overhead costs
Multi-Unit Properties or Single Family Properties?
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Both investments have their benefits depending on your preferences. Regardless of which you prefer, here are 3 things you need to do: First, determine the trend for multi-unit properties and single unit properties in the area where you wish to invest. Second, consider the money for your investment. Do you have enough capital for the multi-unit properties? If the answer is yes, then you’re good to go. Lastly, plan out good marketing strategies that will work for your multi-unit properties or single-family properties. It takes a lot of time and effort to invest so make the best use of your planning time before making a decision.
Having laid down all the pros and cons in real estate investing for multifamily units and single-family units, at the end of the day, you will have to make a decision for yourself.
Do you have any experience with multifamily properties or single unit properties you’d like to share? Let us know in the comments section below.