In my real estate portfolio I have both SF (Single Family) homes and Multi-Family properties. They both have value but which one is right for you? This is the question to consider. I’ll lay out some basic Pros and Cons but location also plays a role in what will work best.
Single Family Pros –
- One of the biggest advantages is that as a landlord you only have to deal with one tenant – hence less drama. With a SF home you are also more likely to get a family as a tenant. Families historically tend to be a more stable tenant and move less often.
- A SF home will also sell quicker if you need liquidly.
- A SF home tends to appreciate quickly.
Single Family Cons –
- One of the biggest disadvantages is the cost of a SF home and whether it will cash flow. One of the tools provided in the Professional Real Estate Investor Class is a mathematical model that will help you determine if a property will cash flow. The model demonstrates cash flow (without the consideration of tax benefits).
- Another disadvantage is that you only have one tenant (didn’t I just say that was an advantage??). The problem with only one tenant is that when the house is vacant there’s no income.
- A SF home can affect your debt to income ratio and might make it more difficult to get additional loans.
Multi-Family Pros –
- By having multiple “doors” (as they are referred to in the industry) to rent, it lessens the risk of having no income for the landlord. It also helps spread out the cost of repairs and capital improvements.
- If a Multi-family building is larger than 4 units the financing is different and the income from the property is a major factor taken into consideration in getting the loan. The lender will require that the loan be guaranteed and you must have the resources and correct amount of reserves.
- Convenience is also an added benefit, instead of having multiple properties around town to be responsible for, you only one location.
Multi-Family Cons –
- As I mentioned above when talking about lending, the initial cost can be greater. You will be held to a higher standard for down payment and reserves. There is more income to cover expenses but the expenses can also be a lot more expensive and have a domino effect. A problem caused by one tenant can quickly be magnified and cause issues with other tenants, i.e.: a bathtub overflowing on the third floor allowing water into all the units below it.
- Turnover can be more of an issue in Multi Family buildings than SF homes. With turnover come added expenses. More units can be turning over at one time.
- Multiple tenants can also cause issues. With more people you have the possibility of having more drama between tenants. Drama can ensue and you as a landlord can be responsible for some of those issues. Police departments and cities are starting to charge property owners for nuisance calls.
There are many advantages and disadvantages with single family and multi-family real estate. Weighing these various pros and cons against each other can help you determine which is best for you. Real Estate investing carries with it risk, but is also carries with it the possibility of big profits and cash flow.
We hope to see you at our next real estate investing class.
Diana Hill – firstname.lastname@example.org