Multi-Family Homes vs. Single Family Homes

Eh. What a day…sports wise. First my Jayhawks lose to Kansas State for the first time in a 113 years! Then both of my sons’ basketball teams fall short. Then the Redskins lose. And my Chiefs aren’t even playing. Let’s move on…

This morning I held an Investor’s Workshop. And I touched on an important subject that I want to go over with people, again. It’s the question of which is better for the long-term investor to own.

Single Family Homes

Advantages – The great thing about SFHs is that they tend to appreciate in line with their neighborhood, independent of what rental rates are. When you go to sell you might sell to another investor. But you will most likely sell to a buyer looking for a home of their own. The buyer looking for their own home will probably be a little less savvy when it comes to negotiation. And since they are looking at a home for personal reasons and expect to hold it for a while they are less likely to be looking for big discounts when they purchase. So your appreciation and buyer pool will most likely be better than that of the multi-family home (MFH). Some investors also believe you get a little better quality tenant who is looking a little more long term.

Disadvantages – This is a huge one for the newer investor. If you don’t have a PAYING tenant that month you don’t have any income that month. Also, SFHs can be spread out all over town causing you some maintenance and upkeep hassles.

Multi-Family Homes

Advantages – I believe duplexes are an excellent way for the newer investor to get started. Or, if you are looking at buying your first home and you are also looking towards investing a duplex will let you do both. Quite simply, live in one side and rent the other. A great way to get your feet wet. The major advantage is if you have one vacancy you still have 50% (or so) of your income that month. Or if you have a fourplex and one unit is empty you still have 75% of your income. And so on. A great safety net. Also, your maintenance tends to be concentrated in a smaller area helping you with upkeep and scheduling.

Disadvantages – Appreciation tends to be tied to the income a duplex or other MFH produces. As mentioned in an earlier blog, any investor worth his salt will not be doing comparables to determine the profitability of a MFH. Offers will be based on the income and expenses of that property. And that being the case your appreciation will be tied to the rise and fall of rents. When rents have been depressed for a while SFHs have probably raced by in appreciation. And lastly, when you go to sell you have a more limited pool of buyers and those buyers tend to be pretty savvy negotiators since they most likely own other investment properties.

So which do I recommend? Well, both, really. It depends on your criteria and your tolerance and ability to pay during vacancies. As you move along in your career I would recommend a mix of both. But that’s just my thoughts on the subject!