One of the most often debated topics in real estate investing is whether to focus on single-family or multifamily properties. First off, there really is no right or wrong answer. There are many investors who focus only on one area or the other and are quite successful in doing so. Much of your decision is based on where you live and what the inventory is like. If there is a very limited supply of multifamily properties, your decision has most likely been made for you. If you have some options, on the other hand, there are a few things to consider.
The biggest reason that many investors stayed away from multifamily properties is because of the higher price tag over single-families. When the market tanked, multifamily properties were the first to see a major price decrease. The multifamily market has recovered some, but it is still nowhere near the level it was at five years ago. This has leveled the playing field somewhat. The first thing you should look at is what is on the market in your area and what the price is. If you can get more units for the same price, consider it.
A single-family property may have only one tenant, but the odds of filling that vacancy every lease is greater than dealing with a three or four family house. On a four unit property, you have to deal with four different checks every month. This works in your favor to soften the blow in the event that one tenant doesn’t pay, but it also means potentially chasing after four checks if they are late. You also have to deal with four tenants reaching out to you when things need to be fixed on the property. If you don’t have the time or the expertise, you will need to hire a property manager. Doing so can eat into your profit margin, but may be worth it.
You should never buy investment property solely for the appreciation, but it is a factor with your rental properties. Single-family properties will and have appreciated at a much higher level than any multifamily property over the past few years. The main reason for this is because financing is much easier on a one family over a four unit house. If there are more sales, the price will increase. Over time you will see increased equity. Most of the multifamily sales over the past few years were done by investors and often done as cash transactions. This has suppressed the market and kept prices low but hasn’t done much to increase property values.
There are pros and cons to almost everything you do as an investor – especially with what types of properties you buy. Focus on your market and what your end goal is with every purchase. If you keep this in mind, it will help you chose the right property, regardless of the number of units.