Investing in residential real estate is always a good way to diversify your investment portfolio. The proper real estate investment option for you certainly depends on the time you can dedicate to managing and maintaining the properties along with your long-term financial goals. A good place to start is with either single family or multifamily properties. They have their own pros and cons, and are appealing to investors based on personal finances and investing preferences.
Single Family Investment Properties
There are many advantages to investing in single family properties over multifamily properties. The first being that many single family homes can be purchased below the fair market value. This is an important investment strategy because profits are made and lost at the time the property is purchased. When an investor purchases a property at a percentage below market value, they gain that percentage in equity from day one.
For example, a single family property is worth $100,000. An investor purchases it for $90,000 or ninety percent of the current market value. The investor gains a $10,000 or ten percent equity stake in the property as soon as it is purchased.
That being said, many multifamily properties are sold above their present market value due to the fact that they are less available in many areas. It all comes down to the law of supply and demand. In addition, the prospect that future improvements will result in higher rents tends to keep multifamily sales prices above current market value.
Property management expenses vary depending on the logistics of managing the properties, along with tenant population. It is certainly true that higher end single family properties with qualified tenants have less turnover on average than their multifamily counterparts. Renters of these homes tend to view their living conditions as more permanent, and have a far greater sense of pride in maintaining the property themselves. This results in less maintenance costs and repairs for the investor. Tenants of single-family properties typically do not outgrow the space nearly as quickly because there is usually a backyard, additional bedrooms, and, in most cases, a basement.
Multifamily Investment Properties
There are many benefits to investing in multifamily homes over single family properties. Multifamily presents a more reliable source of income. A vacant single family property generates absolutely zero income, while a multifamily commercial real estate property will rarely sit one hundred percent unoccupied. The units tend to be less expensive than a single family and therefore fill up faster. Many first-time real estate investors purchase multifamily properties so they can save money by living in one of the units. Living on the property also helps reduce the time and costs associated with management and maintenance.
Another huge benefit of multifamily properties is the fact that investors can own multiple units with less mortgage loans. For example, if an investor purchases ten single family homes, they are required to obtain ten separate mortgages. They are required to make ten separate monthly payments, along with ten quarterly property tax payments, and ten property insurance payments. Applying for ten loans can be frustrating, and, once obtained, all of the payments and paperwork is very time-consuming. On the other hand, if an investor purchases a ten-unit apartment building instead, they have the benefit of the same ten rental incomes with only one mortgage, one property tax, and one property insurance to deal with.
As you can see there certainly are differences between single family and multifamily residential property investments. If purchasing residential real estate is a good fit to your personality and investment strategy, then a combination of single-family, and multi-family units will help build a balanced portfolio.
Written by GilverBook Team