Single-Family vs. Multi-Family: Pros & Cons
Residential real estate investment falls under the considerable ways to enlarge your investments. The right real estate investment choice certainly relies on the effort you’ll put towards maintaining & running the properties and achieving your financial objectives. An excellent starting point is either multi-family properties or single-family properties.
But what differentiates single-family properties from multi-family properties? What are their pros and cons? Let’s see!
What Are Single-Family Homes
Single-family homes, as the name suggests, have just one unit. This means that they offer a place for living and sleeping only. Depending on your preferences and finances, you can rent them out or purchase them for private occupancy. While single-family homeowners enjoy some tax advantages compared to multi-unit property owners, many people prefer buying them because of the flexibility and ease of management.
Pros And Cons Of Single-Family Properties
- Longer Tenant Leases: Unlike multifamily units, tenants in single-family dwellings stay over a year because most want to save to buy a house. Therefore, you’ll enjoy higher annual ROI from these longer leases as an investor.
- Holds Resale Value: Well-maintained single-family homes in thriving neighborhoods usually hold higher resale values. Houses owned in neighborhoods with high crime or declining economies can lose value quickly.
- Lower Property Taxes: Compared to multi-family homes, you can pay lower yearly property taxes for single-family houses. Commercial real estate incurs different taxes, and the tax rates can be higher than the tax charges for single-family houses.
- Lower Management Costs: Since small families or only individuals stay in single-family houses, the management costs you pay per year can be relatively lower than what you can pay for multi-family houses. Tenants who maintain their homes well can cut the repair charges needed with each lease renewal.
- Higher Initial Selling Price: Single-family houses generally maintain their resale value without considering the property’s age. Besides this, single-family houses that are renovated before placing them on the market for selling purposes can have extremely higher sale prices than the homes that require repair when purchasing them.
- Reduced Land Size: An average single-family house occupies less than a quarter an acre in several neighborhoods. A family that prefers renting a house with spacious land is likely to avoid properties with smaller parcels when looking for housing.
- Payable HOA Fees: Not all homes featured in neighborhoods don’t require Homeowner Association fees. A certain percentage of upper single-family homes in upper-class neighborhoods incur the monthly HOA fees. As a result, this increases the cost of owning single-family properties.
- ROI Reduces With Vacancies: Unlike multi-family houses that feature several income sources, single-family houses remain vacant each time the lease agreements engine. Therefore, you’re likely to face increased costs and lost revenue when finding new tenants.
What Are Multi-Family Homes
Multi-family homes comprise more than two apartments or rooms. For example, if you’ve got six apartments or offices in your building, it is considered multi-family. However, these units also come with their benefits and drawbacks.
Pros And Cons
- Less Maintenance Required: The maintenance requirements required for multi-family properties are far lesser than those of single-family homes. Most of these homes are professionally managed by property managers, so you will not need much involvement in the management process.
- Large Land Area: Unlike single-family homes, the land sizes in multi-family properties are almost unlimited. Therefore, if you find a parcel of land big enough for setting up your home business or office, you’ll get no problem acquiring such spaces.
- Higher Return On Investment (ROI): Many landlords prefer investing in multi-family properties because they offer a higher return on investment than single-family homes. This happens since most of these homes produce rental incomes month after month. It also helps landlords maximize their revenues while keeping less cash as profits.
- Increased Rental Income: If you choose to manage a housing complex comprising multiple apartment units, you may increase your rental income. You can charge more rents for those units when demand rises.
- Lower Sales Volume: Some homeowners believe that single-family home sales are higher than multi-unit residences despite having higher returns on investments. They claim that property investors who own multi-family properties tend to sell their rentals at lower prices.
- More Expensive To Own: Unlike single-family houses, buying multi-family properties usually requires larger sums of money. Besides this, you must first pay for legal documents like deeds, mortgages, leases, and other relevant documents required for purchasing real estate. Other expenses include covering the property for insurance purposes.
- Riskier Lifestyle: Buying a multi-family property involves some risks, such as fire hazards, loss of rent payments, and theft. However, it’s still better than owning a single-family house which poses many uncertainties.