Single Family Vs Multifamily, which one is better?!

The biggest question ever asked by a new Real Estate investor is: do I go for a single or do I jump into a multifamily? And the answer is always different everywhere you look, some will tell you go for a single family, it’s cheaper and better, and there are some that will say always go for the multifamily, go big or go home, am I right?! Well, truth be told yeah, you could do either but a type of investment doesn’t always works well for everybody, and sometimes that decision is more based on other stuff! So, let’s decompress and go for what the comps and cons of these different types of properties are, and also let’s go over the basics of investments so you know exactly what do in case you are very much interested into knowing about this, and how to handle them the best you can!

So, let’s start with the basics: is the process of investing in these any different one from the other? And the answer is.. Depends, not every case is the same, but it will highly depend on how you’re planning on working with the deal, for example, if you go for a single family property the interest rates and the down payment will be cheaper than a multifamily property, since the single family property tends to be more for a homeowner rather than the investor, while the multifamily is definitely an investment, so they do ask more from you.

But don’t worry too much about it, because there are ways for you to cut down the expenses on a multifamily investment, mostly it’s all about the “house hacking” process, which includes you living in the multifamily investment, for it to be considered your primary housing, so you can rent the other units to your own advantage, (but that only works with properties of only 4 units). Yes, you might lose the income from one unit, but you will also save up the money of hiring a property manager for your deal! Also, keep in mind this only applies for properties that are 4 units or less, if you go over 5 units it still will be considered an investment!

The way to invest on either of these properties is so diverse that you will have to work it deal per deal and see how it ends up, so once again it always depends!

Now, let’s talk about single family properties, and their basics:

-They are stand alone houses, for a single family, hence why they are called like that.

-Properties like these can rent for a good price since they are a full home for a full family.

-Vacancy is absolute, meaning you either have it rented or you don’t.

-They can be super affordable for the investor, because you could find some good hidden gems around some good high rental areas.

-You get better tenants because it’s a full house rather than a unit or a condo, which can often feel like a passing by type of place.

And now, what are the basics of a multifamily? These!

-A multifamily property can vary, from a apartment building, to a little duplex house, but the basics is to host multiple families in one single lot.

-These properties tend to have huge rents, because you rent each unit as a full property.

-Vacancy is way less likely to be absolute, because since you have multiple tenants, you will have less chance to have a fully vacant lot.

-These properties can be more expensive, and often can be priced around their rental income.

-The care for the properties from the tenants can be a bit off, since it’s not their forever home.

After the basics you can see that these properties can be a bit of a great investment in their own, both with risks but completely worth it, but what are the pros and cons of each one and exactly how can you get to have them? Let’s dive in one by one!

Let’s go over how can you get them:

Single family:

Since single family properties tend to be a bit cheaper than a multifamily, they can also be easier to find in the market, because it’s more often for sellers to be homeowners, since they can be outgrowing their previous home or simply retiring for a smaller place! So, it does tend to be more common for these type of properties to be out there in the market, scattered around and in neighborhood that are better for a rental income, since they can be very well located, and as we know, location is super important when you buy a house!

The best way for you to acquire one of these properties is looking for them where the sellers are, so for example, go over on Zillow, Trulia or Redfin to see what exactly they are selling, and in what areas they work best, you can also head over on craigslist and see what is out there. Another easy way to find out what the market has to offer is wholesalers and mailing lists, for example, 3 times a week we send out a list of properties available for sale, it is a mixture of single family and multifamily, but it does offer a neat idea for what is out there in the market and you can buy them right away, or at least start the process! You can subscribe to these mailing lists, and you shall receive their email as often as they promise, you can subscribe to ours right here if you want to!

Another way to go around getting one of these properties is talking with a Realtor, they have the market knowledge and if it is a realtor that often works with investors, its better for you because they will find you properties that are worth buying.

All of this sounds like good plans to get started searching for these properties, so just start making a few phone calls see what others say and move around it that way, but the main thing you should be focusing on is finding someone to help you through the process, as we offer to do so! The idea of finding a single family home is to find a property you are able to manage within reach and you will know how to handle in the long run, because you already have owned a home, so finding someone to guide you through this can be key, because going into it alone and with no previous information about it can be daunting and quite damaging for your future investment.

Multifamily:

You can find them in the usual places, but the best idea to find these properties is to get along with investors and bird dogs, as these type of properties are far harder to find since they are less common than single family homes, but if you are in specialized mailing lists, or wholesalers mailing lists, you will be able to see what is hot in the market and at very decent pricing!

These type of properties are often off market, since everyone involved wants to get a good coin out of them, so if you’re looking for them, our recommendation is to go for off market listers, and craiglist, since this places offer a better portfolio of properties for you to pick from.

The idea of buying a multifamily property is very much an exciting one, and depending on how big is the property you are looking for, the more options you have, so for example, if you want a small duplex deal, you could have the same budget for it, as you would for a single family property, as they can be less expensive and common, as your local wholesalers would let you know which ones are around and could work for you, but if you go for a huge apartment building, those can be a bit tougher to find, but you could go with a syndicator and they would guide you through the process, and your investment would be a part of a pool, meaning you would only invest a part of it, and with a few other investors you would purchase the property, which the syndicator or sponsor would manage, and you would passively get your money in a while after, if you’re interested on a syndication and want to learn more, we have just what you need, check this out: Real Estate Syndication for Beginners!!

The option of a syndication is quite good, but if you truly want to invest by yourself on a big deal and have the means to do it, the best way is to find who are the big guys in the business, they are not so hard to find, and see exactly which lists of properties are they working in, that way you could see what the business has to offer. Big deals like those are usually off market and off radar, so it can be more of a spy job!

It’s time to talk pros and cons of each one!

Pros of a Single Family:

-Accessibility!

These type of properties are everywhere! You will be able to get these type of properties more easily than you think, you could even go around some neighborhoods and see if they are for sale! It’s a great idea for a beginner!

-Affordability!

They are cheap! Obviously the better located and bigger the more expensive the property can be, but truth be told it is more often than not that you can spend very little amount of money on them and call it a day!

-Tenants!

As previously mentioned, with these type of deals you get better tenants, because it is a full house and can feel like a home for them, which is great for the care of the property making it also way easier!

-Good return!

The rents can be big and cause a good steady return of investment, which is what you’re mostly after when you invest on real estate.

Cons of a Single Family:

-Competition!

There’s more competition as there is “more” product. As you may know by now, it’s a sellers market, meaning there’s less inventory of properties, and for that inventory there’s more and more competition to get them! If you want to read more about it go here: Buyers… or sellers?! Here’s what 2018 will bring!

-Vacancy!

There’s a big issue in single family houses, and that is the absolute side of vacancy, and it’s an issue because while the property is rented you have the expenses of it covered, but once it’s vacant there’s nothing else helping the case, and by then you will have a property that rather than helping you with your wealth is draining your wallet dry, and depending on many factors that can be something that affects your case, situations like a bad job market, or a liquidity crisis will be what ruins your time with the deal, you can always section 8 with this properties, but is that always the answer?

-Management!

When you have a few single family properties scattered around, taking care of them can be more of a chore than anything, you will be driving around trying to make sure all of them are in good condition, and it can be rather expensive and tiresome! That’s the reason why property management companies charge more for single family properties, especially if there are a few of them!

Pros of Multifamily:

-Return of Investment!

The magical thing about multifamily properties is the fact that they can bring in a faster return of investment since they can be bringing in more cash per unit, and the expenses can be covered off and you will be getting some positive income! The return is faster and easier.

-Vacancy!

Opposite to what a single family property offers, a multifamily property is more often than not partially occupied, meaning that it’s never fully vacant! So that means you will be getting some positive income for it no matter what, which in the worst case scenario will cover only the expenses of the full property, but that would mean you’re breaking even!

-Management!

Property management in a multifamily is the easiest thing ever, why? Because it’s all in one place, it’s easier to do, cheaper and the best of it all, it’s manageable! The rundowns can be easier and you can work on them better, you can also have a tenant/property manager, who you offer a place to stay in pay for their work in the property, it’s always a win win!

Cons of a multifamily property:

-Tenants!

The biggest con and at the same time the best pro of this type of deal is the tenants, in a multifamily property they can be more damaging to the place than ever, but they keep on coming in, you would only have to add on the expenses and put a good deposit for it to make sense, it is doable, but also a bit of a chore!

-Accessibility!

It’s harder to find this type of deals, since the ones who own them are way less likely to part from them, but they exist, you just have to spend more time looking for them!

-Affordability!

These type of deals are more expensive than others, you still have good options to buy them, like house hacking or syndications, but they require more money than other type of properties!

-Competition!

As with single family properties, competition is hard in these type of properties! There are less properties like this available than single family houses, so that is also a factor on top of that to take into consideration! Competition is hard, and money can be a huge factor, so for these type of deals, be prepared!

Now it is up to you to decide which one you want to partake into, out suggestion? Try both, go for a small single family property, and then move onto a small duplex, and so on! This way you have the basic knowledge and you can get your trial and error period before you go for a huge apartment building! And actually, even before that, go into a syndication, be a small investor and see how it works before you jump into being a sponsor! That should be the last tier of your climb, and after that pure wealth!

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