You are considering making a real estate investment and are looking at both Single and Multi family homes. The differences between the two are major and ultimately what is right for you will depend on your circumstances and goals. Here we set out the differences and how they can affect your purchase.
The basics difference is that with a single family investment have one set of tenants and with a multi family you have, yep you guessed it, more than one sets of tenants. The differences that this will have to you can be enormous. Here are a few of the most pertinent,
Maintenance: Single Family homes obviously have less to go wrong with them they will typically have just one heating system, one or two bathrooms ad one kitchen, with multi family homes all this can be multiplied by two, or four or however many units your complex has. When there is more to go wrong, Murphy’s Law says that it will, and putting it right can seriously affect your income.
Rental Voids: With Family Units it would be typical for you to have to find tenants one r perhaps twice a year whereas with Multi family units you may have to find new tenants every few weeks. This has a couple of repercussions, if your family home is empty you get zero rent and each month of being empty equates to 8% of your full year income, conversely while you may have one or perhaps two units empty your other units will still be earning you an income. The other flip side of having more tenants moving in and out is that you have a much greater amount of fees from rental agents.
Apart from the impact of having different amount of tenants, the other biggest and perhaps more crucial difference is on the cash flow and on the capital appreciation.
Capital Appreciation: The single family home has a much greater chance to fluctuate in value. This is because it is subject to the over riding forces to which the property market in general is subject to. The average multi family property however is bought off a yield or cap rate an as such will not see such dramatic rises and falls in capital appreciation.
Cash Flow: A single family unit will normally produce a healthy positive cash flow whilst a single-family home, at least those bought recently will only just cover itself.
Which ever method of investing you choose to go for will largely depend on your personal goals and circumstances certainly there are positive and negative aspects about them both