Real estate investing has allowed millions of people to achieve their financial dreams, enabling them to accumulate enough wealth for retirement and generate a stable income after they retire. Not all real estate investors are this successful, and the journey to building wealth through a real estate can be a long and challenging one – but the appeal is consistently evident.
If you’re thinking about getting started in the world of real estate investing, you’ll probably want to begin with a residential rental property. But should you consider a single-family or multi-family home?
Single Family vs. Multi-Family Homes: The Basics
Let’s start with the basic differences between single-family and multi-family homes. With both types of residential rental properties, your core strategy is going to be the same. You’ll want to find high-quality tenants as soon as possible and charge them a fixed amount of rent in line with market rent prices and ideally exceed your monthly expenses. If and when a tenant leaves, you need to replace him as soon as possible.
The difference is that a single-family home is meant to accommodate only a single family; there’s only one unit available. A multi-family home, by contrast, features multiple units, allowing multiple different families to live on the same property.
Either way, as a relatively new rental property investor, you’re probably going to need some help from a property management company in your area. Screening tenants, handling maintenance, and dealing with evictions are all complicated endeavors that are easy to get wrong, and hiring a property manager can relieve stress and help you make sure you’re doing things right. Management companies also have the potential to save you hundreds of hours of work over time.
With that in mind, which type of property is superior?
Advantages of Single Family Homes
As you might imagine, there are some advantages and disadvantages to each type of residential rental property. These are some of the most important advantages of single-family homes:
- Simplicity. Single-family homes tend to be simpler than their multi-family counterparts. When you’re buying the house, there will be less to inspect, the house structure will be more straightforward, and there are generally fewer things that can go wrong. If you don’t have much experience in the real estate world, this is ideal for you.
- Beginner friendliness. Single-family homes are somewhat forgiving as rental property, in part due to their natural simplicity. If you’re nervous about your first rental property, a multi-family property might be intimidating for you. On top of that, single-family homes tend to be cheaper, so you’ll have a higher likelihood of affording one.
- Abundance. Single-family homes are more popular than multi-family homes, at least in most areas. If you’re trying to make your first purchase as easy as possible, you may want to choose the type of property that’s in greater abundance. Finding the perfect multi-family home can be difficult, even for more seasoned real estate investors.
- Low maintenance. The right upgrades can make almost any home low maintenance, but by default, we can consider single-family homes to be lower maintenance than their multi-family counterparts. There are several reasons for this, but suffice it to say, maintenance can get expensive, so it’s usually better to seek a property with the smallest number of potential maintenance issues.
Advantages of Multi-Family Homes
Now for the advantages of multi-family homes:
- More income. Because multi-family homes host multiple families at the same time, you’ll be generating rental income from multiple sources simultaneously. That generally means you’ll make more money with a multi-family property than with a single-family property.
- Fewer vacancies. These types of properties also tend to have fewer vacancy issues. If and when one tenant moves out, you’ll still have an existing tenant available to pay your rent. You won’t be as desperate to fill the void, and you’ll suffer from less income volatility.
- Easier scalability. If you’re looking to buy many different rental properties, you’ll probably have an easier time scaling if you focus on multi-family homes. That’s because, with multi-family homes, each purchase gives you the opportunity to bring multiple new tenants into the fold.
- Potential for personal living. If you purchase a duplex, you’ll even have the chance to live at the property alongside your tenant. If you’re looking for a new place to live, this could be ideal.
Both single-family and multi-family homes have plenty of advantages to offer. If you have the money to buy a rental property, and you buy one in the correct area, you’re likely to put yourself in a position of financial advantage no matter which one of these types of properties you choose.