Single-Family vs. Multifamily Real Estate Investing

When I started my real estate investing career about 30 years back, I thought of buying single-family homes to rent was a great investment and would potentially secure my future wealth.

So I began buying single-family homes and learning the business that went with it, such as financing, up keeping and the challenges that went with it. Since they were scattered in many states we chose to hire property management companies to manage them. The cash flows were erratic but the tax benefits of owning and renting them were good. We just kept on purchasing and holding them for retirement. But I have to confess this year we sold all of them except for a duplex that cash flows very nicely even after 6 years of acquiring.

Single-family and multifamily homes are great for both seasoned investors and up-and-coming investors. As with any real estate deal, please do your due diligence to ensure the deal makes sense financially and fits your personal goals for your investing business.

“For those considering taking the plunge and investing in multifamily properties or single-family properties, it’s important to understand which investment vehicles do what,” writes Paul Esajian. “Deciding among single-family or multifamily properties is largely about personal preference and goals.”

Scattered houses vs units all on one site

“When you invest in scattered houses, the operating expenses are higher and management is more intense than it would be for a multifamily rental property with all the units on one site,” Jerry Chautin writes.

“That’s why management companies charge more for scattered houses. It is difficult to monitor for unruly parties, pet damage and illegal activities such as making and selling methamphetamines,” he says.

As a matter of fact, we had that happen to us in CA inland rental single-family home, where our property management company discovered a meth lab when the authorities cited us. We did get it all abated and re-rented the house but after spending a lot of money in the process. The unexpected Capital needs due to having to buy a new boiler, air conditioning replacement or tune-up, garage malfunction, tree roots getting too close to the house and many other expenses tend to eat into the cash flow very quickly

3 advantages of single-family vs multifamily

1. Easier to get into, single smaller loan or cash deal
2. Appreciation due to the neighborhood growth
3. Easier to sell when needed

“ While the market where the investment is located naturally influences all of these factors, there are a lot of potential advantages to investing in single-family rentals over multi-unit properties,” Andrew Bilen writes. ”Particularly for individuals looking to build their portfolio over time, SFRs offer the option of acquiring units gradually, while the strengthening housing market and high demand for rentals help to minimize risk.”

3 advantages of multifamily vs single-family

1. Higher Cash Flows, more consistent also due to less effect of vacancy; if 2 tenants leave out of 20 units apartment, it’s still 90% occupied. A bigger pool of tenants, the lesser the risk!
2. Bigger control over value, the value is based on the net Income the multifamily generates. By adding value the rents can be increased over time as the leases expire
3. Economies of scale. This is a big one. We only need to replace 2-3 roofs if need be for 20 units as compared to 20 roofs in case of single-family homes. Maintenance requests can be handled easily in one location rather than

Well, I want to mention that there are a lot more than 3 advantages of investing in multifamily; after looking at so many ways to invest in RE, I decided to CHOOSE ONLY ONE PATH—Multifamily Investing!!!

It just made sense 10 years back and holds true today!!!

I encourage emphatically that Investors decide to go this route, it just makes all the sense in the world.

I would like to add more advantages of Investing in Multifamily if you let me…

1. Scalability is much easier in multifamily. Rather than purchasing individual properties and slowly growing your business one transaction at a time, in multifamily, you are purchasing 20 units or 100 units in one transaction.
2. Forcing Appreciation in Multi-Family Properties is Easier Compared to Single-Family Housing. When you give your apartment building (or even a 4-plex or 8-plex) more curb appeal, fix things in the property that make it more appealing as a living space for tenants, add a nice media center, a dog park or a nicer laundry room (these can be done in larger multifamily complexes; say 70 units or more) you will push up the value of the property exponentially. You will attract tenants to your building vs. another landlord’s building. That’s what you want. Plus, you’re creating more and steadier cash flow, because your tenants will want to stay.
3. More income in Multifamily Assets. We call these as Bill back Utilities or (RUBS); the residents are billed for a portion of the water, trash, sewer, and pest control charges out of the total master bill that the owner receives. This way along with paying the monthly rents; residents pay a flat fee or a proportional amount each month for these services. Most of the multifamily properties are individually metered for electricity and each resident pays that separately by themselves.
4. Great Tax Breaks that Come with Investing in Multi-Family Properties. There Are Great Tax Breaks that Come with Investing in Multi-Family Properties. When you provide housing it’s a good thing. The government thinks so, too. The city in which the property is located likes the idea because you are helping the residents of that city by providing clean, safe, affordable housing to people who might not otherwise find it. As a result, you can gain all sorts of tax incentives… also known as tax breaks.
5. You can depreciate all sorts of things in an apartment building or rental property. I really like this, you can depreciate some parts of the apartments on an accelerated depreciation schedule; it’s great to employ a CPA company that specializes in this field. The savings are huge!!
6. Multifamily Properties Hold their Value. Once the property is rehabbed, and you’ve made it attractive to tenants, it will also attract other investors who will be interested in buying the property later (if you ever want to sell). You’ve put in place everything required to attract and retain tenants. That means steady cash flow, which is mighty appealing to investors.
7. Investing in Multi-Family Housing Allows You to Change Lives. We provide great places for the Residents to live in, we provide jobs for so many staff members at the property along with many vendors. Most importantly through syndications, we help a lot of Investors, who are doing well in their profession but don’t have the time and resources.

Well, you can tell that I really am very bullish on investing in multifamily as compared to single-family. I sincerely hope that after reading this article, you will also look into diversifying and start investing in Multifamily. Best game is doing syndications- pooling money together in accordance with the SEC (Security and Exchange Commission) rules and regulations.

• There are many indications that multi-family apartment investments will continue to be great:
• 75 million Baby Boomers are headed into retirement
• Many of today's apartment complexes may be converted to retirement communities in the future; the baby boomers are also downsizing.
• Many millennials aren't buying homes
• It's getting more expensive to build new apartment units