Single-family vs. Multi-family

When it comes to investing, you have many decisions to make.  How to finance the property?  Do I self-manage or hire a property manager?  What are my short-term and long-term goals with the property?  All of these decisions are affected by your answer to the following question:  Should I buy a single-family rental home or a multi-family rental property?

Our client-base runs the gamut from small investors to investing groups with established portfolios.  All of these investors had to answer this question at some point in time.  A few considerations (pros and cons) for each are listed below to aid in your decision:

Single-family:

• Pro - I can live in the property down the line at retuirement if I buy now and rent it out until then.
• Pro - The pool of potential buyers will likely be larger down the line when I want to sell this property since I can sell to investors and home-buyers.
• Con- My cashflow will likely be slimmer with a single-family home
• Con - My vacancy rate may be higher with a single-family since it will reach 100% vacancy every time a tenant moves out.
• I can buy a single-family home just about anywhere in the city.

Multi-family

• Pro - My cashflow may be stronger since it will come from several units
• Pro - My vacancy rate should be lower since I'll only lose a portion of my cashflow if a tenant moves out.
• Con - I won't be able to retire in the property unless I don't mind neighbors/tenants sharing my immediate space
• Con - I'll likely sell the property to an investor so the pool of potential buyers down the line may be slimmer
• Financing properties with 5+ units will require commercial financing (4 units or less can be purchased with residential loans).
• Multi-family properties are typically located only in locations in the city where the zoning allows for this type of housing, so locations may be more limited.