Single-Family vs. Multi-Family: Ending the Investor’s Dilemma

by Patrick Freeze  5/27/2024

The single-family vs. multi-family homes debate is a never-ending question for real estate investors. Both are wildly popular and high in demand. Each is known to be wildly lucrative. It seems like investing in either one would be a no-brainer. However, it’s not that simple.

Investors cannot maximize their ROI unless they zoom in on the property type that best suits their unique entrepreneurial goals. It’s critical to know the differences in what each property type can offer you. Luckily, we’ve compiled a guide to which house types offer different types of benefits.

Main Takeaways on Single-Family vs. Multi-Family Homes

  • Single-family homes offer steady and consistent cash flow, high-value appreciation, tenant loyalty, and ease in finding funding.
  • Multifamily homes are recession-resilient, have multiple cash flow sources, are preferred by some lenders, and are highly scalable.

Benefits of Investing in a Single-Family Home

As property managers in North Virginia, property single-family home is the tried-and-true stalwart of the real estate investing industry. Here are some of the reasons investors keep coming back to them.

Consistent Cash Flow

Many people invest in a single-family home because it offers an opportunity for passive monthly cash flow. They can enjoy the net cash flow left over each month after rent collection, as well as operating expenses and mortgage payments. And that net cash flow will add up throughout the years. You could even use the leftover funds on another rental property.

High-Value Appreciation

Single-family home investors can also benefit from high property value appreciation. After all, U.S. house prices have skyrocketed in recent years. This is a prime time to take advantage of the soaring demand.

Tax Advantages

The IRS offers real estate investors many tax write-offs. These include depreciation deductions and 1031 exchanges.

With these programs, the IRS can fully deduct rental property ownership and operation costs, like routine maintenance, repairs, insurance, property management fees, and taxes.

Tenant Loyalty

The single-family home is known to inspire tenant loyalty. Tenants get attached to their wide-open homes, which makes them want to stay there for years. All in all, there are many bonuses to living in a single-family home. They can come with enhanced privacy, space, and amenities compared to tinier multifamily homes.

Because of this, a single-family home can have lower vacancy rates than apartments and other similar rental properties. This is a big deal since vacant rental properties can rob you of your cash flow until you finally find new tenants.

Ease in Finding Funding

Some lenders view single-family home loans as being less risky than multifamily home loans. After all, these homes are smaller, and therefore less complex, investments. They’re also always in high demand, which makes them a safe bet. Due to this, certain lenders may finance your single-family investments than your multifamily home ones.

Benefits of Multifamily Home Investing

The multifamily home is no slouch when it comes to investor benefits. They come with their own unique advantages that rival a single-family home.

Recession Resilient

On a broad level, the multifamily home is known for its stability. Even in challenging economic periods, multifamily home occupancy rates stay consistently high. In fact, the increased cost of living may only make a multifamily home more attractive to tenants. As single-family home prices and interest rates rise, tenants can turn to a multifamily home as a cheaper alternative.

In addition, with a multifamily home, you can adjust rental rates yearly to match the market environment, operation costs, and demand.

To boot, some lenders and financial service providers may hesitate to provide loans and mortgages in recession times.

Multiple Sources of Cash Flow

When your multifamily home has multiple tenants, your monthly cash flow also multiplies. It stabilizes your income, too, because you are less likely to face rental vacancies.

This is mainly because you lower the chances of experiencing vacancies on your rental property. Plus, even if some units stay vacant for a bit, the other occupied units can pull their weight to help you make ends meet.

This isn’t the case with a single-family home. Remember, because it’s only one unit, you will lose 100% of your monthly income if your tenants jump ship.

Furthermore, multifamily home tenants may request multi-year leases. This can secure your funds for an even more prolonged period.

Preferred by Some Lenders

While some institutions may prefer a single-family home investment, others may prize multifamily home investments. This is because the consistent cash flow enables you to repay monthly loan payments.

Furthermore, lenders can offer you multiple plans for these properties, often with reasonable interest rates. This is especially true with lenders that specialize in commercial real estate. You can even buy more than one multifamily home with the same loan.

Diverse Insurance Options

Insurance companies may offer a multitude of insurance premiums for a multifamily home. So, you can choose from a wide variety of policies. Best of all, if you’re investing in more than one multifamily home, many providers will let you bundle all those investments under one policy.

This does come with an asterisk, however. Unfortunately, insurance providers require large premiums for larger buildings.

Easy to Scale

As you can imagine, a multifamily home allows you to scale more quickly than a single-family home can.

A single-family home portfolio is a slow burn, for better or for worse. After all, you must acquire each unit, one by one. What’s more, a multifamily home with five or more properties counts as commercial real estate. So, they can be a smooth entryway into commercial real estate.

In addition, a multifamily home can have many value plusses, like fitness centers and laundry services.

Unique Tax Advantages

As with a single-family home, you can enjoy numerous tax benefits when you focus on a multifamily home. You can write off any costs related to acquiring tenants and maintaining your property, from marketing a rental to property management.

Also, as your property and appliances age, you can use real estate depreciation and cost segregation tax benefits. At the same time, these qualities make the multifamily property market very competitive.

Earn Passive Income with PPM

In the single-family vs. multifamily debate, each side has its exclusive plusses. The single-family home offers points such as high appreciation and significant tenant loyalty. At the same time, a multifamily home can offer resilience through recessions, as well as scalability and other features.

The bottom line? The property type you should choose is highly dependent on your individual needs as an investor. 

There’s no hard and fast answer to the single-family vs. multi-family home dilemma because it’s individual-investor-dependent. People should choose investments based on the specific factors that will have the biggest impact on them.

For instance, some people may need the long-term scalability multifamily properties offer more than they need immediate high-value appreciation. Others may feel otherwise. It all depends on where you are in your own real estate investing journey.

Either way, you can reap the financial benefits of both single-home and multifamily homes without paying out in lost time or energy. For instance, you can outsource your property management work to a professional company like us. We can take care of the rent collection, maintenance, tenant screening, and other nuisances.

This way, you can invest passively, with little involvement in the actual operations of your property. Instead, you can concentrate all that time on your job or next investment. Contact us today to succeed, no matter what you choose in the single-family vs. multi-family debate.

Leave a Reply

Your email address will not be published. Required fields are marked *