Single Family Rentals vs. Multi-Family Rentals
When it comes to investing in residential real estate, choosing between single family rentals and multi-family rentals is one of the most common decisions that investors will have to make. While some will argue for one over the other, at the end of the day, it really comes down to what works best for you and your investment goals. While single family rentals may appeal to less seasoned real estate investors because of the lower cost, multi-family rentals are popular amongst those investors looking for more cash flow, but who are also comfortable with taking more risk. And that’s because while multi-family rentals can be a great option for those who have more cash to spend, single family rentals provide for a safer, and less expensive investment. Below are advantages to both single family rentals and multi-family rentals.
Single Family Rentals
1. They’re More Affordable
A single family rental unit, also known as a “SFR”, is basically a home that is rented out. The simplicity of these units is what makes them such great investments for new real estate investors. They’re typically less expensive and also require a lot less capital upfront. For instance, in less costly areas of the country, new investors are able to find single-family rentals for as low as $100,000. MartelTurnkey caters to these buyers as most of our homes sell for $80,000 to $100,000. On the other hand, multi-family rentals, even in less desirable locations, could fall into the millions, depending on how many units the property has.
2. Quicker Cash Flow
Whereas multi-family rental units can take you at least six months to see some cash flow, single-family rental units from MartelTurnkey will generate cashflow within just one month. This is a critical consideration when we acquire distressed homes which we then rehab and tenant. After fixed costs, our goal is to ensure that our investors are cash-flowing the first month. Additionally, there’s a very high chance that your property will appreciate in value over time, leaving you wealthier than when you first purchased the property.
3. Easier to Sell and Manage
Single family rentals aren’t just easier to buy – they’re also easier to sell. And that’s because they’re available not just to commercial real estate investors, but also normal families. The barrier to entry is lower, and so is the barrier to exit. You’ll have more options to choose from when selling, as there are typically fewer buyers for multi-family homes. Additionally, because single family homes are a lot smaller, they’re infinitely easier to manage. Unless there’s a major issue in the single family home, they’re less costly to repair and replace anything that may need to be replaced.
4. Growing Demand for Rental Units
Data from NAREIT, the single family rental has lingered around a 30 percent growth rate for the past three years, compared with less than a 15 percent growth rate for the multifamily market during that same period. That means that single family rental units are more popular than ever. And this is partly due to the fact that millennials are around the age where they are looking to purchase homes and start families. Real estate experts predict that the demand for single family rentals will continue to grow, so it’s a great opportunity to hop on the bandwagon.
1. The Rental Income Can Be Higher
Because multi-family homes have more housing units, and therefore more tenants occupying them and providing rental income, investors can generally earn more than they would on single family rental units. Additionally, if there are rent increases, you’ll be making more income as well.
2. Loans for Two-to-Four-Unit Properties Are The Same As Single Family Rentals
If you’re looking to finance a multifamily property with two to four units, there’s good news: these loans vary very little – or not at all – from loans for single-family homes. So, while two to four units are typically classified as multi-family units, they’re almost as accessible as single family units. After four units is when you need to take out larger, commercial real estate loans that are more complicated and more expensive than ones for single family units. Lending rates for rental properties are slightly higher than for your primary residence, but we are seeing very good rates these days.
3. You Can Live There
Unlike single family rentals that are limited in space, multi-family rentals provide investors with the ability to live in their property. Not all investors choose to do this, however, if you are looking to live within the property you own and are managing, this could be another plus. If you missed last week’s article on house hacking, read it here: https://martelturnkey.com/why-we-dont-love-house-hacking/
4. Economies of Scale
Economies of scale are also known as reduced costs per unit. This typically comes into play if you’re deciding between purchasing multiple single family units or just one multi-family unit. For instance, if you need to make repairs on the unit, such as the roof, then you’d only have to invest in one roof that will cover all of the units, as opposed to having to repair multiple roofs on more than one single family rental. If you choose to hire a management company to manage your property, you’ll also only have to hire one to manage your multi-family unit.
When deciding to invest in a single family unit versus a multi-family unit, it’s important to note that both come with their own set of risks and rewards. However, if you’re a new investor, are looking for quicker cash flow, and want to deal with minimal stress, a single family rental is the best way to go. Single family rentals are more popular than ever which is a testament to their profitability and accessibility. At MartelTurnkey, we encourage our new investors to start building their real estate portfolio with single family rentals because of their many advantages.