Multifamily vs. Single-Family Rentals: Which Is Right for You?

Rental property investments can be very lucrative and a great acquisition for those looking to add a consistently cash-flowing asset to their portfolios. But between the two types of long-term rental properties, you may be wondering which one is right for you. While multifamily investments offer attractive cap rates, they also come with a higher entry cost and require more management. Single-family homes, on the other hand, are more manageable but don’t offer the same financial benefits.

Are you considering adding a rental property to your investment portfolio? Continue reading as we compare the pros and cons of each property type to help you decide which is right for you.

Cash Flow and Vacancies

The most apparent difference in these properties is that multifamily homes offer investors multiple sources of cash flow from tenants, while single-family homes only offer one.

Single-Family Rentals

• Pros: One tenant is easier to manage and income is more predictable, plus there tends to be fewer vacancies with single family rental investments
• Cons: In the case of a vacancy, there will be no income generated from the investment

Multifamily Rentals

• Pros: Higher cash flow potential from multiple tenants, and a reduced impact on your income from vacancies
• Cons: More tenants to manage means ensuring you receive the full income from the property will be harder, and these investments typically have higher tenant turnover rates

If your main priority is maximizing cash flow, multifamily investments can be appealing, just know they also require more management. Single-family rentals can offer more stability at the cost of less income potential.

Management Complexity

The next major difference lies in how much work managing these properties requires.

Single-Family Rentals

• Pros: It takes less work to manage a single tenant, and a smaller property means less intensive maintenance
• Cons: As your portfolio grows, managing multiple single-family homes in different locations can be cumbersome

Multifamily Rentals

• Pros: You can benefit from economies of scale by having multiple tenants in the same building, the cost of maintenance and repairs is spread across all the rental units
• Cons: Put plainly, managing more tenants will require more time, and a larger property means costlier maintenance and repairs

Although managing single-family rentals is more straightforward, the principles of managing a rental property apply to each investment. Multifamily properties are a great way to scale your portfolio quickly, but it is recommended you have experience managing rentals before diving into a multifamily investment.

Financing Options

Most people would agree that securing financing for a single-family home is easier than a multifamily one, but this isn’t necessarily true in all cases.

Single-Family Rentals

• Pros: More straightforward financing options, typically available from conventional mortgage lenders
• Cons: Limited leverage and scalability, limits on how many mortgages you can have at the same time

Multifamily Rentals

• Pros: Can be easier to obtain financing due to higher income potential and less perceived risk by lenders, especially private and hard money lenders
• Cons: Larger down payment requirements, and private loans come with higher than average interest rates

Investors looking for simpler, more traditional financing may prefer single-family investments, while those looking to scale their portfolios quickly should consider financing a multifamily property with a private loan.

Appreciation and Growth

How these properties grow in value over time can vary, outside of market factors like location and population growth.

Single-Family Rentals

• Pros: Appreciation for these properties is largely market-driven, just like with an owner-occupied home
• Cons: You have limited control over value increases, and upgrades have less of an impact

Multifamily Rentals

• Pros: Investors have more control over appreciation through making property improvements, and the benefits of the upgrades are shared across multiple rental units
• Cons: Significantly higher costs for both property acquisition and upgrades

If you’re comfortable making upgrades to a property, you can get more value from them with a multifamily investment. However, if you prefer a more passive approach, single-family homes will be more suitable for you.

Scalability

The rate at which you can scale your portfolio with these investments may also affect your purchase decisions.

Single-Family Rentals

• Pros: Slower, more steady growth by acquiring properties one at a time
• Cons: More difficult to scale quickly, each individual acquisition will have its own financing and closing process

Multifamily Rentals

• Pros: Much easier to scale quickly, you can acquire multiple rental units in a single transaction
• Cons: Requires more capital and will demand more time and effort to manage appropriately

Investors who prefer steady, gradual growth will want to stick with single-family rentals. Multifamily homes are great for scaling a investment portfolio quickly, but they have more management requirements than single-family homes, and ideally you should have experience managing rental properties already.

RCN Capital

The easiest way to save on rental property financing is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance an investment property?