Do SFR = more equity where MFR = more cash flow?

[Scott K.]

In the BRRRR podcast, episode 327, David Greene made a comment (1:08:30ish) suggesting his single-family homes tend to add equity for him and his multi-family homes contribute more cashflow. He suggested the two asset classes work with one another in a complementary fashion.

Can someone explain why this is true (particularly why single-family properties tend to add more equity). I'd be especially curious to see any example math behind this if it exists somewhere.

Video: https://www.youtube.com/watch?v=FBci62dfqaY

[Scott Passman]

@Scott K. The reason he generalizes that is because SFR are purchased primarily by homeowners for the intent of living in them. There is a large pool of "unsophisticated" buyers in that market who are making emotional purchases based on what they like and don't like which means SFR historically rise in price more over time. When you have a lot of people bidding on the same thing and there's emotions involved, the prices naturally bid up so the appreciation of SFR nets you additional equity over time. On the flip side, MFR are primarily purchased by investors who do so based more on objective numbers and thus are less likely to get into bidding wars. Also, the number of people in the market for a multifamily property is significantly less than SFR which limits the pool of buyers. Because of this, MFR tend to have less appreciation compared to SFR, but because you have more units under one roof they often cash flow better.