Should You Invest in a Single or Multi-Family Rental Property?
The proportion of people renting rather than buying their home is on the rise, which might have you thinking about investing in residential rental property. If so, should you go with single or multi-family units? Here’s a look at the pros and cons.
Single and Multi-Family Rental Definitions
Let’s start by making sure we understand the difference between both types of properties. A single-family rental property is one where the unit is taken by one person or one family. Whether it’s a condo, a townhouse, or a detached family home, the principle is one unit and one renter.
In contrast, a multi-family rental is where there’s more than one tenant or renting family in the building. This could range from a single-family home that’s been divided into first and second-floor apartments to a purpose-built apartment building.
Single-Family Rental Pros
- As a landlord, you won’t be asked to mediate in tenant-to-tenant disputes.
- Most likely, there are no common areas to maintain (and if there are, there will be an association or property manager that deals with them.)
- Single-family renters tend to take better care of the property and stay longer, another reason there’s less maintenance.
- You’ll probably have owner-occupiers close by. That helps keep up appearances, and therefore, rent.
- If you’re investing in more than one property, you can diversify across several neighborhoods.
Single-Family Rental Cons
- If you have more than one property, figure there will be more time and expense involved in watching over them.
- Banks might restrict the number of loans you can take out.
- Returns may be less than on a multi-family unit, but this varies by locality.
Multi-Family Rental Pros
- Easier to manage, because all your units are in one place.
- Economies of scale on maintenance (only one roof to replace and so on).
- Commercial real estate loans can be more flexible.
- May yield a higher return (again, this is location-dependent).
- You can live in one of the units!
Multi-Family Rental Cons
- May need more money for the investment (though the cost per unit is less than single-family homes).
- Risk of tenant-to-tenant disputes.
Managing the Property or Properties
Do you or will you be managing your properties directly, or will you go through a property management company? The latter is less work, but you will need to account for the additional fees involved for their services.
When selecting a property management company, it pays to do some homework. A professional property management business will have a website that clearly lays out the services they provide, and the fees involved. It should also detail the locations they cover and the property types they manage. If the first website you visit isn’t as clear and transparent, keep searching or give them a call to get answers to your questions!
Decide What Works for You
Residential rental property can be an excellent investment, but it’s essential to do your research and decide on an approach that suits you. Many investors choose the single-family approach, but if you have more than just a handful of properties, managing them can become a lot of work. Multi-family rental property can require a more significant initial investment but also yield a better return and can be easier to manage. Whichever route you go, it may be worth asking a professional property management company to handle all the details.