Single Family Residence vs. Multifamily Residential (2-4 units) - Pros and Cons?

Question

Hi All,

Can anyone offer pros and cons of investing in a buy/hold strategy for Single Family Residential vs. Multifamily Residential (2-4 units)?  Taking into account things like vacancy factors, higher rental income version multiple incomes, owner/occupy advantages & disadvantages, income and vacancy stability of the renters, maintenance and land lording issues, etc. and even 2 unit versus 3 unit versus 4 unit properties?

Still very new at this and looking for some education and members' experiences/advice to draw from.

Thanks all

Jason

Nathan Emmert · Answer

That's a LOT of questions in 1 post...

So some basics... single family homes tend to appreciate faster than multifamily homes... simply a larger pool of buyers out there for them.

Single family homes will rent higher than multifamily homes (due to privacy and space)... and many believe they have longer occupancies as well.

Single family homes generally cost more to make rent ready as they are larger which can be a negative if your turnover is too high (I've heard rumors of needing to stay 3 years or more to come out ahead).

Multifamily homes tend to generate more total income for the same size/cost.

Multifamily homes have the benefit of multiple revenue streams (1 unit empty, no prob!  The other 3 are rented!)

Multifamily homes generate more income per unit of CAPEX (a roof on a multifamily home isn't any larger and still needs to get replaced every 30 years, etc).

Multifamily homes can have higher expenses (4 kitchens, 4 fridges, 4 dishwashers, 4 furnaces, etc),can't always split utilities (water isn't separately metered, can't be charged to the tenant in Utah) and things like mowing and snow removal end up being LL responsibility).

Now... comparing Quads to say duplexes?  I'm moving away from the 1 bedroom units... a lot of quads tend to fall into that category where duplexes are often 2 or 3 bedroom units... why?  In my experience, 1 bedrooms tend to rent quickly but have a high turnover.  I've seen more stability in my multi-bedroom units with families and kids in schools.

Of course,  your mileage may vary.

I probably missed a ton too but tired of typing :)

Jeff B. · Answer

@Nathan Emmert has restricted MFU to the 2-4 units.  These are:

• bought and sold using Conventional Loans with a typical LTV of 80% 
• and evaluated by Comps in the area.  
• Your personal finances and credit (DTI) are key factors in qualifying for the loan.

The MFU(5+) has all the same attributes Nathan has enumerated, but are:

• bought and sold using Commercial Loans with a typical LTV of 70-75% and 
• are evaluated by the GSI they produce. 
• The property's ability to be self sustaining, measured by the DCSR, is the dominant criteria for qualification and your personal status, especially the DTI, is of far less concern.

Gus Ross · Answer

@Jason Yee please read the post above by @Nathan Emmert because I share the same sentiment and points he noted.  Most specifically the ability to condense CAPEX to a single location.  The shared use of the structure (i.e. roof, walls, floors, ceiling etc) is a significant pro in my opinion.

Andrew Hughes · Answer

The cash flow in multi family tends to be much better. In my area it is hard to find a single family or even a duplex that would cash flow well but 3 or 4 units tend to cash flow much better.

Olatunde Arowolo · Answer

As a newbie,

Can anyone pls, explain the fundamental differences between a SFR & MFR?

Thanks guys.

Jason Yee · Answer

Wow thank you everyone for the response!  I feel like I'd lean towards the multi's because of the income stream mixed with the favorable owner/occupy financing?  But I am running into the issue of multi's in my area being more expensive and worrying about rents being able to cover the mortgage.

Troy Young · Answer

I think it comes down to personal preference. I know people that do multi family now and started off with single family. They like the multi family better because they get a better cash flow, less overhead (taxes, maintenance, financing etc), plus if they buy it to renovate everything is in one location rather than separate sites. Many times the more people you pack into a tighter space the more problems you will have with tenants and tenants not getting along with each other. I do single family homes and still get a decent cash flow and basically never have problems with the tenants or vacancy. But I will probably get into multi family soon to expand my horizons. In different areas the markets are different so some places like NYC people are used to living on top of each other and the cost for a single family home wouldn't be worth it but in other areas where people are used to having their own house that is quiet and private it may be harder to get people to be good tenants in a multi family building.

Ryan Dossey · Answer

If you go with a SFR keep in mind if it is vacant you have no income at all. Now I own 2 SFR but they were bought as a package on one mortgage. If one is vacant the other still pays all the bills and cashflows. I will be purchasing a 4plex in the near future for my wife and I to rent out the other 3 sides. Even if you aren't looking to owner occupy the benefit with multi is if one unit is vacant you still have bills being paid. Keep in mind with multi (2-4 units) they don't appreciate like a single family does. You really have to make sure that you buy right.

Single Family Residence vs. Multifamily Residential (2-4 units) - Pros and Cons?

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