Opinions often vary regarding the advantages of investing in single-family homes (SFHs) over multi-family complexes (MFCs). Some feel the short-term potential of MFCs surpass that of SFHs. While others cite the long-term potential of the SFH as being a preferable trait. The reality is—of course—it depends.
What are your long-term goals? How much is your available capital? What is your overall tolerance for drama? Depending upon your answers to those questions, smart single-family rental investing in a city can indeed be preferable to multi-family rental investing when you take the following factors into consideration:
Lower Barrier to Entry
On the whole, it’s easier to get started with SFHs. In fact, a good strategy for young investors is to purchase a starter home in which to live while they save and help appreciation bolster the value of the property. Once their equity position becomes sufficient, they can then refinance the house to purchase a larger home. If you start at age 25, repeat this process every five years with 15-year mortgages and acquire your last property at age 50, you’ll have a nice home free and clear when you turn 65 — along with six paid-for rentals from which to derive retirement income.
Easier to Afford
Buying a SFH generally entails much less expense than acquiring a MFC. They are lower-priced, easier to finance and require much less liquid capital to buy. Plus, if you ever need to sell, they also tend to move more quickly when they come on the market—assuming they’re well maintained and in good locations.
Single-family properties tend to appreciate more rapidly in cities than complexes do. The resell market is much broader for SFHs, as they can attract people who need to purchase a home as their primary residence as well as investors looking for nice rental properties to add to their portfolios. On the other hand, MFCs tend to appeal only to investors. As a result, the pool of potential buyers is smaller, so demand isn’t as great and appreciation happens more slowly.
Easier to Manage
Maintaining a SFH is much less involved than keeping up a MFC. In a rental house, you’re likely to have at best three toilets. In a MFC the number of units multiplies the number of toilets. Ditto appliances to fix, carpeting to replace, walls to paint and all of the other aspects of keeping your property in tip-top condition. Yes, good property management companies can relieve you of much of the burden, but even then, your costs are lower with SFHs.
More Desirable to Families
In general, SFHs are easier to rent when they’re in good locations because people with children prefer to live in houses. This also means your turnover rate will be lower because all things being equal, a family is more likely to stay put — as long as the place remains comfortable and meets their needs as a family. Further, most people with children prefer a neighborhood setting with backyards, trees and other like-minded people nearby. This is more likely to be the case in a neighborhood of SFHs, than in an area zoned for MFCs.
Fewer “Personality” Problems
Anytime you put a bunch of people in close proximity to one another, you’re inviting personality clashes. Yes, you can screen your tenants very carefully, but it won’t guarantee Tenant A’s preference for the Raiders won’t irk Tenant B’s love of the 49ers. In SFHs, the person who pays the rent calls the shots for the behavior of the occupants of the entire place. In a MFC the number of units multiplies this factor and everybody doesn’t have the same sensibilities, which can lead to landlords finding themselves in the uncomfortable position of arbitrator.
For these reasons and many others, many people prefer smart single-family rental investing in cities to multi-family complexes. Ultimately, it all depends upon the particulars of your individual situation.