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.
