Multifamily vs. Single-Family Investing: Which is Better for Landlords?

multifamily-vs-single-family-investing

Even though 67% of homes in the US are single-family vs. multifamily rentals accounting for 27%, many real estate investors and landlords don’t know the difference between these types of rental units.

When comparing single-family vs. multifamily rental properties, understanding how each one impacts an investment portfolio is the best way to keep consistent cash flow moving in the right direction.

Keep reading for a full breakdown of single and multifamily properties, financing options, and real estate investing strategies.

What Is Single-Family and Multifamily Investing?

Single-Family Investing

Investing in single-family homes refers to purchasing residential real estate for single families to live in, with the purpose of generating rental income or capital appreciation.

Single-family homes tend to be acquired to rent the entire property or sell at a profit. These rental properties are usually standalone houses, not apartment buildings or condominiums. Single-family home occupancy rates average around 95%, indicating a steady influx of demand (and rental income).

Multifamily Investing

Multifamily investments refer to residential real estate that consists of multiple rental units, such as an apartment building, condominium complex, or townhouse.

Instead of purchasing individual houses, real estate investors and landlords put money into multifamily buildings with multiple rental units under one roof. A multifamily investment property typically has more than four units (five or more units). Recent trends show multifamily properties surpassing commercial offices, accounting for 42% of the total U.S. real estate market.

Difference Between Single-Family and Multifamily Properties

Here are the differences between multifamily vs. single-family rentals:

Single-Family InvestingMultifamily Investing
Investment Cost Lower initial costHigher initial cost
Acquisition Generally easier to acquire due to lower price pointMore competitive due to higher potential returns
Financing More straightforward and accessible to most real estate investorsMore complex and may require larger down payments or syndication
Cash Flow Typically lower due to a single source of incomePotentially higher due to multiple sources of monthly income
Rental Demand IncreasingSlightly decreasing
Tenant Turnover Tenant turnover affects 100% of the rental incomeTenant turnover is less impactful on total rental income due to multiple units
Insurance Lower insurance costs Higher insurance costs
Scalability Slower growth; investors often purchase one single-family property at a timeFaster growth; buying a rental property with multiple units grows a portfolio quickly

Pros and Cons of Single-Family vs. Multifamily Investing

Let’s discuss some advantages and potential drawbacks of multifamily vs. single-family investing:

Single-Family Investing

Pros

  • Affordability: The investment required for single-family rentals is often less than for multifamily housing. This is reflected in the down payment, which is typically between 15-25% for a single-family home compared to 25-30% for multifamily units.
  • Accessibility: With a lower purchase price, various financing options, and fewer legal complications, investing in single-family rental properties is relatively easy for a new real estate investor to purchase.
  • Geographic Diversification: Buying multiple single-family rental properties in different locations is easier than purchasing and managing multifamily real estate in separate markets.
  • Flexibility: Single-family investments are generally easier to sell than multifamily properties.

Cons

  • Limited Returns: The cash flow for a single-family home tends to be relatively low. This can be further impacted by unforeseen costs (e.g., repairs or property damage), leading to smaller net profits.
  • Limited Growth Potential: To expand your real estate portfolio with single-family rentals, each new rental property incurs individual transaction costs, negotiations, and legal fees.
  • Vendor Challenges: Sourcing a quality contractor and a property manager for single-family properties can be difficult and expensive with limited cash flow coming in.

Multifamily Investing

Pros

  • Income-Based Valuations: Unlike single-family real estate, multifamily investments are valued primarily on rental income. Even small improvements in operations can significantly increase the value of a multifamily property.
  • Efficiency: Multifamily housing offers greater economies of scale. For instance, managing a multifamily property with 10 or more units is often more cost-effective than managing multiple single-family homes.
  • Tax Benefits: Multifamily rental properties have more tax benefits, such as expense depreciation, accelerated depreciation through cost segregation, and deferral of capital gains taxes.
  • Stability: A vacant multifamily dwelling unit has less of an impact on rental income compared to single-family homes. For example, a three-month vacancy in a 10-unit rental property results in a 2.5% annual vacancy rate. The same scenario in a single-family home leads to a 25% annual vacancy rate.

Cons

  • Less Affordability: Multifamily properties are more expensive and challenging to acquire, especially for novice investors.
  • More Risks: Real estate investment risks for multifamily rentals may be too daunting for new investors, particularly if there are unexpected costs or market fluctuations.

Multifamily and Single-Family Financing Options

Comparing financing options for single-family vs. multifamily investment properties? Start with choosing the best banks for real estate investing to ensure favorable terms and competitive rates.

Baselane helps simplify real estate financing with Lendency rental property loans tailored for landlords. These loans span from $55K to $2M and can fund a variety of property types, including single-family residences (SFRs), condos, and multi-unit properties up to 8 units.

Our competitive rates and flexible terms make the funding process quick and easy, with loans typically closing within 10 days. As a property management company, we also offer landlord banking, bookkeeping, and accounting to help keep all your cash flow in one place.

Check out our guides to learn more about multifamily and single-family financing options:

  1. 5 Best Loan Types When Buying a Rental Property
  2. How to Get a Loan for a Rental Property: Everything You Should Know
  3. Ultimate Guide to SBA Loans for Rental Properties

Final Thoughts

Overall, a single-family home vs. a multifamily home can produce multiple income streams. New investors may opt for single-family rental properties because the initial costs are lower and financing is more accessible. On the other hand, multifamily properties generally provide higher potential returns and better cash flow due to multiple sources of monthly income.

Get a free demo to find out if an all-in-one rental property management platform can help maximize the potential of your real estate investments.

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Financial Technology, Real Estate Investing, and Property Management, Accounting and Tax, Finance
Saad started his career as a Certified Public Accountant (CPA) working for a top-tier accounting firm. He was responsible for helping audit alternative investment funds. He later worked at a hedge fund where he was responsible for preparing financial statements and implementing new technology. He also ran a successful private tax practice for five years.

After completing his MBA at Duke, Saad joined The Boston Consulting Group to do management consulting. At BCG his experience spanned several industries and growth projects across Pharma, Retail, and Technology companies. His passion for democratizing finances led him to Plaid, a fintech, where he worked with large Banks and Financial Institutions to make finances and money easier for all.
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Multifamily vs. Single-Family Investing: Which is Better for Landlords?