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Now that you have decided to invest in rental property, you probably have several questions in mind before you officially begin your property search. One early and vital consideration that rental property investors must make is whether to purchase a single or multi-family dwelling to rent and manage. Each type of property comes with its own unique benefits and challenges. By understanding each, it will ultimately help you make the best decision for yourself as you take on this exciting venture.
Here, we’ll take a closer look at the advantages of investing in each of these types of properties.
Advantages of Single-Family Property Investments
One of the significant benefits of buying single-family rental properties for new investors is that they require less upfront capital. There are many times that investors can buy a single-family home for less than $50,000 while the down payment for a multi-family property might cost about ten times that amount.
2. More Inventory
Each year, there are about five million homes for sale throughout the U.S. on average. Such large volume means more potential for finding better deals and buying additional properties, especially in markets outside of major cities like San Francisco, for example.
3. Better Resale Opportunities
Just as single-family investment properties are easier to buy, they are also easier to sell due to their comparatively less expensive price tag. In addition, there is a higher potential buying pool, including other real estate investors like yourself and traditional homebuyers.
4. Allows for Steady Growth
Depending on the prices in your chosen market, you can accumulate new properties at about one per year. Then, in about 10-15 years, you are likely to experience a strong and steady cash flow.
Advantages of Multi-Family Property Investments
1. Easier and Speedier to Scale
With multi-family properties, you can buy multiple units—anywhere from one to 100 or more—in a single location during one transaction with one seller. Trying to do the same with single-family properties would involve ten separate houses and ten different sellers, for example. You can instantly charge rent for multiple units right away.
2. Economies of Scale
One single property with multiple units is still only one property when it comes to insurance and large-scale repairs. So, if the roof of your apartment complex needs repairs, you are only paying for one roof covering several units. Additionally, it is easier to respond to tenants and their needs when they are located in one central location. This makes it simple and more efficient for you to inspect issues, make repairs, and perform any other important property management responsibilities.
3. Better and Easier Access to Financing
Any time a building contains five or more units, it becomes eligible for a commercial loan. When compared to residential loans, these are easier to obtain since they are based on the investment itself, rather than your liabilities and assets. Further, the volume of paperwork when applying for multi-family properties is significantly less, compared to when applying for a loan for a single-family home.
4. Stronger Value
Value is often associated with the performance of the structure and all revenue generated through rental income. This means that a large, multi-family building can reap substantial gains quickly.
Single and Multi-Family Properties are Smart Investments
Choosing between a single-family property and a multi-family property comes down to budget, financing, short-term and long-term profit goals, convenience, and potential exit capabilities if needed. Both property types come with advantages and disadvantages, but either can turn into a wise and profitable addition to your investment portfolio with work and commitment.