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Wednesday, 11 October 2017 05:00

Single Family Homes Vs. Multifamily Property Investing

Single Family Homes Vs. Multifamily Property Investing

What is better; single family home investing or multifamily apartments?

There are passionate advocates for both of these types of rental property investments. How do they really stack up? Which is the smarter move?

The Pros & Cons of Multifamily Property Investment

There are some investors who are very bullish about multifamily apartment buildings, and argue that they have traditionally offered some advantages in the real estate investment space. Let’s look at both the pros and cons.

The Pros:

  • Ability to acquire large numbers of units at the same time
  • Consolidated management and operations
  • ROI on improvements can benefit all units in one building
  • Traditionally offer ‘lower cost per door’

The Cons:

  • May require far more cash from investors
  • Complexity of property maintenance and construction
  • Often result in lower yields
  • Slower diversification

The Pros & Cons of Investing in Single Family Homes

Here are some of the traditional advantages and disadvantages associated with investing in single family residences (SFRs). Though it is important to note that things have changed significantly in this space over the last ten years.

The Pros:

  • Easier entry due to lower costs and access to financing
  • Faster and broader portfolio diversification
  • Larger resale pool and variety of exit strategies
  • Simplicity of investment and management

The Cons:

  • Larger number of transactions required to achieve same unit count
  • Distance challenges for property managers
  • Competition from regular retail home buyers
  • Impact of vacancy on smaller portfolios

VIP Observations:

While multifamily property investing used to have some distinct advantages, especially for big funds and those with substantial capital waiting to be deployed, things have changed. Now, thanks to changes in the marketplace, technology, and new service providers; it is easier to buy single family homes in larger numbers, efficiently manage them with new tech tools, and even to finance them with new blanket mortgage loans and credit facilities. This includes access to stated income loans, options for lower credit scores, and even short-term rental or Airbnb Mortgages.

Conclusion

Multifamily property and single family home investments can both offer cash flow and wealth building opportunities. Multifamily apartment buildings will always have their fans and advocates. They can certainly offer some advantage in economies of scale for larger investors and institutions with large amounts of capital. However, single family homes have become even more attractive to investors at all ends of the spectrum thanks to new technology, availability of credit and rental property financing, and channels for doing business.

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