SS169: Multifamily vs. Single Family Real Estate Investing: Which Is Better?

SS169 Multifamily vs. Single Family Real Estate Investing Which Is Better

There are pros and cons of owning single-family and multifamily properties. In this episode, Charles discusses the advantages and disadvantages of each property type.

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Talking Points:

  • The choice between multifamily and single-family real estate investing depends on various factors and your specific investment goals. Here are some key considerations for each:
  • Multifamily Real Estate Investing:
    • Scale and Efficiency: Multifamily properties typically allow for economies of scale. You can manage multiple units under one roof, reducing overall management costs. You can own many units by just purchasing one property. Purchasing and managing (10) 10-unit buildings is much easier than 100 single-family houses.
    • Cash Flow Potential: With multiple rental units, you have the potential for higher overall rental income, which can contribute to stronger cash flow.
    • More Consistent Income: If one unit is vacant, the income from other units can help offset the loss, providing more income consistency and less volatility.
    • Professional Management: Larger multifamily properties may justify hiring professional property management, freeing up your time. You must have many single-family houses near each other to rationalize third-party management.
  • Single-Family Real Estate Investing:
    • Lower Entry Costs: Single-family homes generally have lower upfront costs compared to multifamily properties, making them more accessible for some investors.
    • Appreciation Potential: Single-family homes may have greater potential for individual property appreciation in growing markets, especially in desirable neighborhoods.
    • Easier Resale: Selling a single-family home might be easier and faster than selling a multifamily property. However, the value depends exclusively on sale comparables, which you cannot control.
    • Longer-term tenants: Typically, single-family houses will attract families who tend to stay for years.
  • I also want to point out that you are not limited to only purchasing single-family or large multifamily properties; you can also purchase small multifamily properties, 2-4 units, which is how I first became a multifamily investor.
    • So, multifamily refers to any property with 2+ units, and single-family properties refer to properties with only 1 unit, which makes perfect sense.
    • I make this distinction because there is some overlap with single-family and small multifamily properties with 2-4 units since properties with 1-4 units are all considered residential. In contrast, multifamily properties with 5+ units are considered commercial properties.
    • The main differences to the investor are how the properties are valued; commercial properties are valued off their net operating income, not sales comparables.
    • Secondly, commercial properties require commercial financing, usually higher interest rates and larger down payments.
    • To sum that up, if you are purchasing a 2–4-unit multifamily property, you should be able to receive more favorable loan terms than if you were purchasing a 5+ unit commercial property. This allows small investors to become multifamily investors on a smaller scale, with lower barriers to entry.
    • On the flip side of that coin, with commercial properties, you can force appreciation. In other words, you can make changes to the property that increase the net operating income, which will increase the property’s value.
  • Some further considerations for purchasing either single-family or multifamily properties would include:
    • Market Conditions: Consider your target area’s current real estate market conditions.
    • Real estate is hyperlocal; ensure that the neighborhood you invest in is desirable by good tenants.
    • Local Regulations: Be aware of local zoning regulations, property taxes, and other legal considerations that may affect your investment.
    • Risk Tolerance: Assess your risk tolerance and ability to handle potential issues such as vacancies or property management challenges.
    • Investment Strategy: Your overall investment strategy, whether focused on cash flow, appreciation, or a combination of both, will influence your choice.
    • Better properties in better areas will attract better tenants, increasing the property’s income reliability.
  • It’s essential to thoroughly research and analyze the specific opportunities in your chosen market and align your investment choice with your financial goals, current financial situation, time availability and risk tolerance.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing multi-family versus single family real estate investing, which is better.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
The choice between multifamily and single family real estate investing depends on various factors and your specific investment goals. Here are some key considerations for each. With multifamily real estate investing, you’re getting scale and efficiency. Multifamily properties typically allow for economies of scale. You can manage multiple units under one roof, reducing overall management costs, and you can own many units by just purchasing one property. Purchasing and managing 10, 10 unit buildings is much easier than a hundred single family houses. There’s a greater potential for cash flow with multiple rental units. You have the potential for higher overall rental income, which can contribute to stronger cash flow. There’s more consistent income. If one unit is vacant, the income from other units can help offset the loss, providing more income, consistency, and less volatility and professional management. Larger multifamily properties may justify hiring professional property management, freeing up your time as an investor, and you must have many single family houses near each other to rationalize third party management when dealing with single family rentals.

Charles:
But there are also some benefits to single family rentals. Number one being lower entry costs. Single family homes generally have lower upfront costs compared to multi-family properties, making them more accessible. For some investors, appreciation potential single family homes may have greater potential for individual property appreciation in growing markets, especially in desirable neighborhoods. And it’s easier resell. Selling a single family home might be easier and faster than selling a multifamily property. However, the value dependence exclusively on the sale comparables, which you cannot control longer term tenants. Typically, single family houses will attract families who tend to stay for years. Now, I also wanna point out that you’re not limited to only purchasing single family or large multi-family properties. You can also purchase small multi-family properties, two to four units, which is how I first became a multi-family investor. So multi-family refers to any property with two plus units.

Charles:
Single family refers to properties with only one unit, which makes perfect sense. And I make this distinction because there is some overlap with single family and small multifamily properties with two to four units. Since properties with one to four units are all considered residential. In contrast, multifamily properties with five plus units are considered commercial properties. Now, the main differences to the investor are how the properties are valued. Commercial properties are valued off their net operating income, not sales comparables. And secondly, commercial properties require commercial financing, usually with includes higher interest rates and larger down payments. Now to sum that up, if you’re purchasing a two to four unit multifamily property, you should be able to receive more favorable loan terms than if you’re purchasing a five plus unit commercial property. This allows small investors to become multifamily investors on a smaller scale with lower barriers to entry.

Charles:
On the flip side of that coin, with commercial properties, you can force appreciation. In other words, you can make changes to the property that increase in that operating income, which will increase the property’s value. Some further consideration for purchasing either a single family or multi-family properties would include market consideration. So consider the market conditions of your target area when you are making a decision to invest. And real estate is hyperlocal, so ensure that the neighborhood you invest in is desirable by good tenants. And make sure that you’re aware of local regulations. Be aware of local zoning regulations, property taxes, and other legal considerations that may affect your investment. When I used to own a lot of older properties, they would have, the city would be always adding in codes that had to be for new renovations and updates that had to be done to older properties, usually around like fire and safety.

Charles:
And new investors or even existing investors had to be aware of these new local regulations to make sure that they were working them into their numbers when they were purchasing properties. Next is your risk tolerance. I mean, assess your risk tolerance and the ability to handle potential issues such as vacancy or property management challenges and the investment strategy. I mean, your overall investment strategy, whether focused on cash flow, appreciation, or combination of both will influence your overall choice and better properties in better areas will attract better tenants. Increasing the property’s income reliability. Now it’s essential to thoroughly research and analyze the specific opportunities in your chosen market and align your investment choice with your financial goals, current financial situation, time, availability, and risk tolerance. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments and potential show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs@syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of syndication Superstars, LLC exclusively.

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