Pros and Cons of Single-Family vs. Multifamily Investments

Investors looking to break into the world of real estate may be wondering whether to start small with a single-family investment, or save up and acquire a multifamily home to kickstart their portfolios. For a broker or lender who works with investors, it’s also important to understand the key differences so you can know which product to recommend to your clients. Both types of investments can be very lucrative acquisitions, but there are certain scenarios where one may be a better fit than the other. In this piece, we break down the pros and cons of single-family vs multifamily investments to help you familiarize yourself with these asset classes.

What Are the Basics of Each of These Investment Types?

Let’s start by covering the basic definitions of each of these investment types. Single-family investments are standalone residential properties designed for one family to live in. These include single houses, but also townhomes and condos. They are generally less expensive to acquire and easier to manage, making them a great entryway for beginner investors.

Multifamily properties, on the other hand, include any residential building with multiple housing units. Duplexes, triplexes, and quadruplexes are all great examples but this includes large-scale apartment buildings. These properties are typically recommended for experienced investors, but they allow someone to acquire multiple income-generating units in one purchase.

Pros and Cons of Single-Family Investments

Now let’s dive into the pros and cons of single-family properties:

PROS

• Single-family properties typically have a low cost of entry, which makes them suitable for investors with less capital, or those who are starting out.
• These homes are also good for investors just getting into the world of real estate as they are less complicated to manage and can give them good experience before moving on to other, larger investments.
• Single-family homes are always in high demand, which means they can be sold more quickly after being listed. They are ideal for fix and flip projects for this reason.
• They are also easier to market, as they appeal to a broader audience for both buyers and renters.

CONS

• Single-family homes have limited cash flow potential and less potential for upgrades to improve the property’s cash flow.
• Vacancies have a higher impact on these investments since it means a total loss of income from the property.
• Appreciation is slower with single-family homes, which is one of the few ways to help boost an investment’s returns.

Pros and Cons of Multifamily Investments

Multifamily homes have their own set of pros and cons:

PROS

• The most apparent benefit of multifamily investments is acquiring multiple income-generating rental units in one purchase, leading to higher cash flow.
• These investments offer unmatched scaling, allowing investors to build their real estate portfolios and amass wealth quickly.
• There is reduced risk from vacancies, as there are still other units providing rent which can help cover the loss of income.
• Professional property management becomes a viable option with multifamily homes, opening the path for passive income.

CONS

• There is a higher cost of entry with multifamily homes, although financing can actually be easier to acquire depending on the lender.
• These properties require more hands-on management as there are tenants to deal with.
• They also generally require experience in order to be managed effectively, since there is significantly more work involved with both the property and tenants.

Key Factors to Consider When Choosing

There are a few factors your client will want to keep in mind when deciding which type of property to invest in. First is what are their financial goals: Short-term cash flow or long-term appreciation? The former may be better suited to single-family homes, while the latter is perfect for multifamily investments. Second, what is your client’s management style and risk tolerance? Multifamily homes are better suited to those with a lower risk tolerance, and those who prefer outsourcing management. Finally, it’s always important they consider market demand, and which type of investment is more profitable in the particular market that is chosen.

To summarize, single-family homes are ideal for beginner investors, or those seeking simplicity in their real estate investments. Multifamily homes offer larger-scale cash flow, but tend to require more experience and a time commitment in order to be successful investments.

RCN Capital

The easiest way to save on an investment is to obtain financing from a real estate lender that can provide you with 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. If you are looking to finance a real estate project, RCN Capital has competitive loan options available.