Which Investment is Right For You? Single Family vs. Multi-Family

Posted by on May 24, 2017 in Writing | No Comments

Many new buyers and long term investment buyers have the same question.  “Should I be looking to buy Single or Multi-Family properties for investing?”

There are a lot of things to consider on both sides of this conversation so we’re going to try and break down the pros and cons of each option.  

Single Family Rental Properties

Single family residences are absolutely the easiest way to begin investing in real estate.  In fact, many first time home buyers will live in their new home for 2-3 years before upgrading to something bigger and better while renting their starter home.  For those of you interested in building a portfolio of single family homes you should consider the following.

What’s for Sale?

Single Family homes in Central Texas are presently in short supply, however, there is a ton of movement within that inventory.  This means that there are a lot of houses that are ready to make a quick, competitive deal.  If you are looking to purchase multiple homes you may even consider some of the areas surrounding Austin like Cedar Park, Pflugerville, Buda, or Dripping Springs.  The market is booming in Central Texas and we are enjoying a ~7% annual growth rate on average in most of those areas. 

Flexible Resale Options

Did we mention that the market in Central Texas is fast?  Homes in Austin have spent around 40 days on market average from Listing to signing the paperwork.  For you, this means that whenever you are ready to cash out of a specific property you will have a wealth of buyers that are eager to snap up your property once it goes on the market. Additionally, you aren’t restricted to a specific type of buyer.  There will be other investors interested, first time home buyers, move-up buyers, and flip and fix type buyers eyeing your property.  

Low Barrier to Entry

It should come as no surprise that Single Family Residences (SFR) are cheaper on average than apartment buildings That can be attractive to those that want to pay all cash. It is also easier for those that have little money to put down. Additionally, if you are open to the idea of roommates you can collect rent while paying your mortgage to help dive into the real estate game.

Multiple Family Rental Properties

Multiple family homes are perfect for someone wanting to dive into real estate investing.  Whether you are looking at Duplexes, Apartment Buildings, or owning 100s of buildings there are several things to consider.

Scale

Multifamily is perfect for somebody who is interested in making big leaps with their real estate portfolio.  Each building can possibly add 2, 4, 10, 25 units to your monthly income allowing you to grow much quicker than SFRs.

Ease of Closing Contracts

When purchasing apartment buildings you also benefit from the ease of adding units.  In SFR there is a contract for every new unit that needs to go through the contract negotiation and closing phases.  On apartments, you can bundle a large number of units into a single contract.  It also allows for easier management of your investment in the future since your units are all located in a single place.

Return on Improvements

One of the best benefits of multifamily property investing is the economy of scale. While apartment buildings typically have a lower cost per door, management is typically more effective and profitable, and any improvements made can help to lift the value of many units, not just one. If you add a fitness center, you are adding the value of a fitness center to every unit in the community.

Ease of Financial Management

Multifamily property investors also enjoy more control over their income and asset values. Commercial properties like this are valued on their net income, not comparable sales. Landlords have the freedom to not only adjust rents, but to increase operational efficiency and augment income with factors such as laundry, internet service, and more. You can reposition an apartment building in many ways that are beyond the possibilities available to single family home investors.

Summary

It is difficult to directly compare the pros and cons of Single Family vs Multi-Family investments. The best bet is to talk with your Realtor about what specifically you want to accomplish with your investments.