Should You Invest in Five Single-Family Units or a 5-Unit Multifamily?

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I’ve heard more and more people ask lately whether they should buy a handful of single-family residences (SFRs) or one larger multifamily residence (MFR). Regardless of how many properties or units you are considering, the question remains—buy several SFRs, or one MFR?

There are essentially two questions embedded in this one question, and you should evaluate the pros and cons of each in order to determine which is right for you:

  1. SFR or MFR?
  2. Residential or Commercial?

Residential MFRs can hold up to four units. An MFR with more than four units is considered a commercial property. So let’s consider the questions I’ve posed, beginning with the first:

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As with most things, there are pros and cons to both options. For more detail on comparing the pros and cons of SFRs vs. MFRs, read this, in which I further explain the two types of properties and what to consider before investing in one.

In less detail, the factors I consider when weighing SFRs vs. MFRs are as follows: property cost, financing, maintenance expenses, management, vacancy expenses, cash flow, location, tenant quality, tenant turnover, appreciation, and exit strategy. In my opinion, there’s no right or wrong answer to which one to buy—SFR or MFR—when you are only considering residential properties. The only time you can go wrong is if you invest in an MFR that either has the same cash-on-cash return, or a lower cash-on-cash return, as an equivalent SFR. This is because typically MFRs come with slightly more inherent risk, due to the lower tenant quality and higher tenant turnover that can come with multifamily units. [Note: As with anything, my advice is completely dependent on individual situations.]

Related: The 7 Vital Steps to Buying a Single Family Rental House

If we are comparing apples to apples with SFRs vs. MFRs, the MFR should come with a higher proposed or advertised cash-on-cash return, because you assume more risk with an MFR. There’s no point in taking on a lower return if you are still running at higher risk levels. I am only willing to accept lower returns if there’s a tradeoff—that I’m investing in a lower-risk property. Make sense? If you aren’t overly familiar with calculating cap rates and returns, this article will help you get up to speed.

For the most part, I believe that the pros and cons of residential SFRs vs. residential MFRs tend to balance each other out. There isn’t necessarily a wrong decision.

Ultimately, what you should first consider with either type of property is the numbers. Which scenario offers the highest returns? Whenever considering which properties to invest in, always run the numbers first. If the numbers are similar, the next things to consider are your own personal interests and risk tolerances: Maybe you’ll love the look and feel of a particular SFR so you’ll buy it. Or maybe the idea of having more than one unit under one roof really gets you excited. Maybe the idea of multiple units terrifies you, or you are absolutely bored with the thought of simply having a single unit.

Related: Single Family Homes vs. Multi-Unit Apartments: Which Investment is Right for You?

Remember that certain markets may be more favorable than others for SFRs or MFRs. In some markets, it’s often easier to get a good cash-flowing SFR over an MFR. When investing, I’ve worked within several states at a time. And at any given moment, half (or less) of the markets I’m working in offer good cash flow on MFRs. More than once, the markets that have offered good returns on MFRs have offered significantly higher returns on MFRs than on SFRs. So again, it’s really all about the numbers. Depending on what the numbers look like, you may not even have to think too hard about which type of property to buy.

Now that you have a general understanding of SFRs vs. MFRs, let’s move on to the second question:

Residential or Commercial?

As you may have guessed, there are pros and cons to both residential and commercial property investments. Keep in mind, I’m creating this pro list to address buying several SFRs vs. one larger MFR, so a consideration like “entry price” will not be included since I’m assuming the price will be similar for either purchase (ie. buying five SFRs vs. one 5-unit commercial MFR).

Residential pros:

  • Diversification. If you have one property that struggles to perform, you’ll have four more completely separate properties to help carry the weight of the lower-performing one. You could even sell the low-performing property while keeping the high performers, continuing to optimize your portfolio. Basically, your metaphorical eggs will be spread throughout five baskets—and you can even spread those eggs out in different geographic locations to further diversify your portfolio.
  • Market appreciation. Residential properties get to take advantage of market appreciation. Depending on where you buy and when, this could mean a tremendous amount of appreciation per property. Commercial properties, on the other hand, are valued based on income.
  • Tax benefits. Residential rental properties are the single-most tax-advantaged asset class in the tax system. Writing off five separate properties on your taxes can be freakishly beneficial to your bank account.
  • Cheapest loan options around. Residential mortgages get the best loan rates!
  • Exit strategy. If you decide to ditch the property, you’ll have the option to sell it to a primary homebuyer and not just to fellow investors. Primary homebuyers will almost always pay more for a property than an investor will.

Commercial pros:

  • One roof. One address; one property; one source for management; one tax return; one hassle; less confusion. This notion, all by itself, is typically what wins over a lot of investors.
  • Financing. This could go either way, because a higher down payment is usually required for commercial buildings. However, I’m putting this in the pros list because the financing qualification for a commercial property is based almost solely on the income the property generates. This is highly advantageous for anyone who won’t qualify personally for a mortgage or residential loan.
  • Market independence. Commercial properties aren’t completely market independent, but they aren’t likely to crash as hard (or as fast) as residential properties. Again, commercial property values are based on the amount of money they make, not the market. A crash could affect the rent that each unit brings in, and that can in turn affect the property value—but it won’t be as directly affected as a residential property.

As I said, I’m writing these lists by considering the advantages of buying five SFRs vs. one 5-unit MFR. If I were to delve into other types of commercial buildings such as retail spaces or triple-net buildings, there would be added pros like lease lengths, business tenants rather than individuals, stability over time, and more. Keep these in mind if you are diving further into the commercial realms, but for the sake of this article, I’m leaving them out.

Which is better? Five SFRs or One 5-Unit MFR?

This is where it’s going to come down to your own personal preference. As I’ve displayed, there are advantages to both.

Use this checklist to evaluate your options:

  • The numbers!
  • Diversification
  • Options for adding value
  • Risk
  • Exit strategy
  • Financing options
  • Financing qualifications
  • Management options
  • Tax benefits

You should have a working understanding of how each property type affects the factors listed above in order to determine what best suits your situation. Numbers matter; the market matters; and make sure you are comparing apples to apples not apples to bananas; and then make your choice!

What do you think? Are you leaning towards buying several SFRs or one larger MFR? 

Let me know in the comments below!

About Author

Ali Boone

Ali Boone is a lifestyle entrepreneur, business consultant, and real estate investor. Ali left her corporate job as an Aerospace Engineer to follow her passion for being her own boss and creating true lifestyle design. She did this through real estate investing, using primarily creative financing to purchase five properties in her first 18 months of investing. Ali’s real estate portfolio started with pre-construction investments in Nicaragua and then moved towards turnkey rental properties in various markets throughout the U.S. With this success, she went on to create her company Hipster Investments, which focuses on turnkey rental properties and offers hands-on support for new investors and those going through the investing process. She’s written nearly 200 articles for BiggerPockets and has been featured in Fox Business, The Motley Fool, and Personal Real Estate Investor Magazine. She still owns her first turnkey rental properties and is a co-owner and the landlord of property local to her in Venice Beach.


  1. karen rittenhouse

    Hi Ali!
    I started out buying single family because (1) I understood it and (2) I could afford it! And 12 years later, I’m still with it. I currently own over 100 rental properties and buy about 60 properties a year.

    One reason that just came to me in contemplating your article, is that my husband and I love the business and do it full time. I (we) like the pace of the churn-and-burn. We often buy (and sell) 5-7 properties per month – that’s a lot of moving parts! But we’re both very active in our business and in the real estate community.

    For those who would like to set-it-and-forget it, perhaps a more hands off approach, I think of commercial as requiring far less personal activity to bring in the checks, once they’re leased up.

    People talk about 1031 exchanging single families up to commercial, but we haven’t had the desire to this point. We understand SFR and, for us, it’s been hugely successful.

    Thank you for your post and, as always, I learned a lot from you!

    • Angela liu

      @Karen Rittenhouse – “For those who would like to set-it-and-forget it, perhaps a more hands off approach, I think of commercial as requiring far less personal activity to bring in the checks, once they’re leased up.” <– I found this really interesting. I've heard a lot more folks starting with SFRs before moving onto MFR or commercial and I assume this often has to do with the idea to 'start small', get one's feet wet first on something that requires a lower learning curve as opposed to commercial. Hence, as much as I'd like to jump into commercial, I'm planning to make myself start with a SFR first. Why do you think commercial could allow for a more 'set it and forget it' approach? Do you mean this as compared to a big portfolio of SFRs or is one commercial prop still potentially better suited for 'hands off' than one SFR?

      • Paul B.

        A large commercial property allows you to have professional management, which means you aren’t taking calls from tenants, fixing things, collecting rent, etc. You hardly ever have to set foot on the property. You just need to make sure your property manager is doing their job, and be prepared to replace them if they’re not. Furthermore, office and warehouse space could be triple-net, which means you’re not even responsible for maintenance.

        However, a five-unit apartment complex, as mentioned in this article, would be too small for a professional manager, and it would still be hands-on.

        • Ali Boone

          Paul, I disagree. Property managers can be hired for small residential properties too. I have all SFRs and I have property managers on all of them. I don’t do any of the every day stuff.

      • Ali Boone

        Angela, good question. In general, a small SFR or a large commercial building can be as hands-off or hands-on as you want it. It’s all about what you buy and how you manage it. My guess is Karen is talking about not having to deal with residential tenants. Commercial businesses just kind of do their own thing, in your building. Residential tenants are higher-maintenance (ha, no pun intended). Your idea to start smaller is a totally legit one, and can also be very hands-off. All of my small properties are hands-off (for the most part). But even with me not doing the work for my properties, I do get annoyed hearing about tenant drama. But either way, it’s all dependent on how your structure it.

      • karen rittenhouse

        Hi @Angela: One reason to start small is the expense. You need a lot more money to buy commercial and the costs of everything – mortgage, insurance, HVAC, roof, and vacancy, as examples – is so much higher. You need to know what you’re doing and have funds available to get into commercial.

        Why the ‘set it and forget it’? I think of that with commercial retail spaces where a tenant moves in, renovates, stays for years and takes care of it as if it is their own. Typically, you worry only with structural issues where, when you have tenants living in a unit, including apartments, there is a lot more monthly involvement, even with a property management company. I have 2 companies handling my properties but they let me know about move outs, evictions, any repairs over $300 and so on. Just a lot more business with individuals rather than companies.

        Thanks for asking!

    • Ali Boone

      Thanks for your awesome comment, Karen!I always love hearing from you! Your story is amazing and I think you hit on one of the most important points about real estate investing that so few people ever mention– at the end of the day, what really matters is what you are comfortable with and what flows most naturally for you. Some things may look better on paper than others, but ultimately I think everyone should do exactly what is most enjoyable to them. I don’t think any return is worth losing sleep over. Know why you are making the decision you are making, and then rock it out. 🙂 Your story is a perfect example of that…why mess up a super-successful flow that is already working for you? Great share and hope to hear from you again soon! 🙂

  2. Chris Soignier

    Ali, good food for thought. I’m a former single family investor, and now only have one great cash cow SFR plus interests in around 15 apartment complexes. I’d like to add a lot of pros to your list for multi-family:

    – easy to arrange debt on a non-recourse basis, lowering the investment risk
    – diversification: if you have a few units down in a 100 unit apt. complex, it doesn’t tank your P&L like having one unit down in a small SFR portfolio.
    – economies of scale: hiring a FT maintenance person at a certain # of doors is much less expensive than relying on 3rd party trades for maint. and repairs.
    – Lastly, I love investing passively in MF deals, as it frees up my time for my family and my business as a REALTOR. Accounting is done for me, I only need to share my K-1’s with my accountant.

    I’d love to get your insight as to how single family properties are more tax efficient. We do cost segregation on most of my MF investments, and they typically produce a tax loss in conjunction with tax-free distributions. In fact, I recently got 101% of my original investment on one deal via a refinance (tax-free), while retaining full ownership! I love the tax advantages I get via MF, and imagine that performing similar cost segregation studies for multiple houses would be cost-prohibitive.

    • Ali Boone

      Hey Chris, thanks for adding these! MFRs haven’t been my niche so far so I don’t know the more-detailed types of things. So this is a great add. I unfortunately can’t speak to cost segregation, or compare anything to it, as I don’t know the specific ins and outs.

  3. Mark Hentemann

    Thanks, Ali, this makes a good comparison.

    My real estate experience started with SFR’s. When I added a fourplex to the portfolio, however, I got hooked on multifamily. As you point out, it’s very much the “one roof” theory. One roof to fix or replace, not four. One foundation, not four. One gardener, one trash bill, one closing process, one tax return, etc. It simplified my investing, made it simpler.

    My management costs were 10% for SFRs, vs 4% for multifamily. When a tenant moved out, my multifamily building was still 75% full, and covering monthly expenses wasn’t a concern. For an investor, the tax benefits were exactly the same between the two.

    I spent a year or two focused on 4-units, then tried a 6 unit, then a 10, 14, then a 20 unit building. My best performers are usually the larger buildings with most economies of scale.

    Regarding financing, I just refinanced a side-by-side 4-unit and 7-unit building. I thought I’d do two loans, since I could get residential financing on the 4 unit, which I thought might have better terms. However, after analyzing the options, I found that combining the two buildings into one commercial loan offered the best overall rate and terms. One again, it was due to scale. Creating a combined 11-units pushed the loan amount over $1m, and the commercial lenders incentivized these larger loans. It resulted in a rate .45% lower than the residential alternative (3.8% vs 4.25%) for the same term.

    You make a good point that location is a factor. My day job (writing), took me to a major city (Los Angeles), which is a renter city. There is high demand, and the tenants like urban apartment living. I came from Ohio, where I’m guessing that there’d be more demand for SFR’s than apartment units. I have friends there that invest in SFR’s and swear by them.

    Anyway, just wanted to throw in my perspective!


  4. Edward Synicky

    All good points. Yes you can make money in both investment vehicles. I like making more money that is why I have been in SFR for 40 years. Yes I did own multi families in the past. What won me over are all of the points made but the final winning straw was the financing. I am a buy and hold investor and when I raise the rent I do not want to share it with the bank. A fixed rate 30 years loan instead of a variable rate commercial loan was my deciding factor. ALong with less turn over, fewer expensive, higher appreciation, flexibility in refinancing one SFR at a time instead of all 10 of a multifamily property etc etc. Both ways work, it is just an individual choice.

  5. Jean Mevoit

    Hello Ali & Greetings to All,

    I thank Ali for her very insightful article. My concern with the post is when she mentions a market crash can impact the income of commercial building. How can a market crash impact the income of a building subject to multiple lease mostly signed on a yearly basis?
    If besides Ali someone else could clarify I would really appreciate.
    Thanks & regards to All

    • Paul B.

      Maybe she was referring to a crash in the economy in general, as opposed to a real estate market crash. If the commercial real estate market crashes, it doesn’t matter if you don’t intend to sell the building and your tenants are still paying their rent. But a recession could indirectly affect you, because if your tenants can no longer pay you their rent (whether they are apartment dwellers who lost their jobs, or a retail business that is struggling), you’re going to lose income.

    • Ali Boone

      Well Jean, don’t you think I’d be the best person to clarify? How come someone else has to? 🙂 (actually I don’t remember what I wrote. Without the context that claim doesn’t sound right, so it could’ve been a typo or in relation to some other context I’m not remembering. If you want me to clarify (lol), I’ll go back and reread what I wrote).

  6. Nghi Le

    I think a lot of this is location-dependent too (as are most things in real estate). I just started acquiring rentals in the past 6 months, so I’m still pretty much a newbie at this point, but hopefully I can contribute something just from my small experience.

    I have two SFRs, two 4-plexes, and one 6-unit, all in the mid-west. I think one thing you didn’t mention as a pro for the SFR is that you usually have more long-term tenants.

    Also, it has been (and still is) such a pain to find financing for my 6-unit, and I think it would apply for the 5-unit too. The main reason is because of the lower price point (valued around $120k); if it was worth at least $500k, I think that would open up so many more doors for me. And I get the worst of both worlds treatment for it; residential lenders won’t touch it because it’s 5+ units, and commercial lenders and appraisers want to treat it like a 4-unit because it’s much more similar to that than it is to a big apartment. Which basically means they use comp analysis instead of cashflow, even though it meets the 3.5% rule.

    • Ali Boone

      Oh, all great considerations Nghi. Thanks for including them! This is all great extra info that readers can use (and I can too!). What a great portfolio you have, and it totally makes sense about the lower-price point commercial loans. I’ll keep that in mind for myself actually.

      Which of all of those are the best cash-flowers?

  7. Chris Jensen

    Thank you Ali and all those who left comments. I joined BP with the goal of growing my real estate portfolio by shifting from SFR to MFR, and I still think that’s a good plan for my individual situation. BUT, what I’m learning on BP through articles like this is that there are opportunities in many different paths. No one path is the exact answer all the time. Focus is good, but diversity can also be good.

    • Ali Boone

      I think you hit the nail on the head, Chris! Thanks for sharing. Like what I responded with to Karen up above…at the end of the day, you have to go with what is most comfortable, natural, and fitting for you. Because exactly what you say- no one path is the exact answer all the time. If it were, everyone would do it. Great input!

  8. zul hirani

    I am a new here and love the articles in this forum….Like to share my 2 cents of experience in owning multi units. It will help someone. I owned a 50 unit building in Texas with a group of investors.I had about 40% share. There were about 12 investors. I later found out that property was in an area surrounded by about 10 apartment buildings of 50 or more units. When recession hit…In a year other five properties foreclosed…someone bought them for 50 cents on a dollar and dropped rents….We were in trouble…lost occupancy plus management company troubles plus all smaller investors stopped funding cash calls and we ended up handing the property back to the lender. There were many lessons learned here…

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