Multi-Family Dwellings vs Single-Family: Which One is the Better Investment?

Investing in real estate offers lucrative benefits. These investments can generate a steady flow of income, allowing owners to capitalize on their efforts and improve their financial outlook. Those who want to get started in real estate investment have many options.

Investors must decide whether to invest in multi-family or single-family dwellings. Which of these is the best investment? Both have pros and cons, depending on a person’s investment needs.

Understanding the Differences Between Single-Family and Multi-Family Homes

Those new to investing in real estate may not understand the differences between single-family and multi-family dwellings. A single-family home is a freestanding unit that is meant to house one family. Single-family properties include the following.

  • Ranches
  • Townhomes
  • Split-levels
  • Bungalows

A multi-family dwelling is meant for multiple families and contains various numbers of units based on the size of the property. Multi-family homes include the following.

  • Duplexes
  • Condos
  • Apartments
  • Co-ops
  • Assisted living centers

Single-Family Vs. Multi Family

Some people invest in both over time, but investors may need to make a choice if they do not have enough working capital and are just getting started investing in real estate. We will talk about some of the most important factors below to determine which option shines more in each area.

Value Appreciation of the Property

Aside from earning a steady income, the goal of investing in real estate is to ensure the property appreciates over time. When it comes to single versus multi-family properties, single family homes typically appreciate more than multi-family. The reason single family homes appreciate more is that the market is much wider.

Cash Flow of the Property

As stated above, one of the top reasons for investing in real estate is positive cash flow. If evaluating the winner for cash flow, it is clearly the multi-family property. Although a multi-family dwelling requires a larger investment, there are more units to bring in revenue than a single-family home offers.

Maintenance of the Property

Before investing in any property, buyers need to ensure they realize the potential cost and effort for maintenance. Many lending companies for homes will factor in the potential costs for maintenance and the income revenue before offering a loan.

Simply based on size and the number of units, multi-family homes are typically going to require more maintenance than single-family dwellings. Weigh the time and money required for investing in maintenance for both before deciding.

Stability of the Property

Stability is also a factor to consider when purchasing real estate. In this category, there is no clear winner between single-family and multi-family homes because there are drawbacks to both.

Single-family homes do not bring in money if they sit empty. A multi-family dwelling will not lose all the rental income if only one unit lies empty.

Multi-family dwellings typically have a higher turnover rate than single-family homes, making it difficult to decide between the two based on stability alone. Real estate investors should factor in all the information to determine a clear winner.

Management of the Property

Property management is not for the faint of heart, which is why many investors hire a management company. When comparing single-family homes to multi-family homes, one should quickly realize a single-family home is going to be much easier to manage because there is only one unit and one renter.

Landlord Liability

Many investors do not think about the prospects of being held liable for their properties and the potential for causing injuries. When it comes to comparing multi-family properties to single-family dwellings, there is no contest. Multi-family properties lead to a much greater level of liability.

Landlords must maintain common areas such as courtyards, walkways, and lawns. Because of the greater risk of liability, many investors make the smart decision to put their multi-family dwellings in an LLC.

Property Exit Strategies

While investors may decide to keep a property forever, many consider their exit strategy from the very beginning. Once an owner decides to sell, they need to consider the ease of exiting.

It is much easier to sell a single-family dwelling than a multi-family building because they are in much greater demand. Some owners even discover they can sell a single-family home to their tenant with ease. No matter who an owner decides to sell to, they should have no trouble unloading a single-family property.

Investing in Single-Family or Multi-Family Homes

There is no doubt that both options offer benefits to investors. Comparing the two may seem like comparing apples and oranges, but one must analyze the options above and determine which seems more favorable for their investment needs.

Those new to real estate investing often do not have the working capital to invest in multi-family properties. For these, single-family homes are more obtainable because they typically cost less and are easier to manage without the huge liability risks of multi-family properties.

Multi-family properties are best reserved for real estate investment pros. When there is more at stake, investors will find management becomes a full-time job that is more challenging to master.

Before deciding on any property, investors also need to consider the location. Properties located in high-density areas are more likely to require multi-family properties because they will be in great demand. Rural settings are better for single-family dwellings.

Which Is Right for You?

You have evaluated the pros and cons above and considered your financial outlook. Which property type is right for your investment needs?

If you are new to investing in real estate, consider keeping it simple and investing in a single-family dwelling. These properties are going to cause less of a headache and will help you get your feet wet in the world of investing.

Multi-family properties can bring in a greater steady stream of income, but they are not without problems. If you have experience investing in real estate and know all the ins and outs, it may be time to consider a multi-family option.

No matter which property you select, approach the decision process realistically. Do not get caught up in the numbers alone. Think about the long-term consequences of ownership first.

Get a personalized loan consult with one of our experts today.