Real Estate Investing Basics

Single Family vs. Multifamily Rentals: Which Investment Is Right for YOU?

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Is it better to invest in single family or multifamily rental properties?

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There are passionate advocates for both of these types of properties. How do they really stack up? What are pros and cons of each option?

Investing in Single Family Rental Properties

Inventory

Single family rental property investors enjoy much greater inventory choices. There are around 5 million home sales in an average year. More choices mean the potential for finding better deals and doing a higher volume of transactions. This may not feel like the case in some areas—for example, San Francisco—but if you open up your map, you can find plenty of options with less competition, more value, and more volume potential.

Multiple Exit Strategies

Single family homes are popular investments for the fact that they offer multiple exit strategies. They have much larger resale pools. There are far more end buyers for single family homes than apartment buildings. Individual homes can be sold to retail home buyers (first time home buyers, move up buyers, and those downsizing), rehabbers, other buy and hold investors, builders, to cash buyers, or on a seller financed basis.

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Related: Should You Invest in a Small or Mid-Sized Multifamily Deal? Get the Pros & Cons Here!

Ease in Getting Started

This is a cheaper option, too. The average single family home is far cheaper than an apartment building. That can be attractive to those that want to pay all cash. It can also appear easier for those that have little money to put down. If you don’t have the money to buy a whole house yourself, you can even partner with others.

Investing in Multifamily Rental Properties

Scale

For those with really big goals, multifamily property investing can help make some big leaps. Imagine if each acquisition added 10, 20, or 100+ new units to your portfolio instead of just one. Anything over 5 units is consider commercial multifamily. One to four-unit properties are treated as residential for financing purposes.

Efficiency

It takes less time and energy to acquire 50 units in an apartment building than 50 single family homes. It may take a little longer and a little more work than one single family, but it does build in more efficiency and better ROI on your time. Investing is all about being efficient with your time and money. At some point, most investors will find that it only makes sense to graduate up to multifamily to fully optimize their cash, wealth building, and lives.

ROI

One of the best benefits of multifamily property investing is the economy of scale. That means you can do more for less. Apartment buildings typically have a lower cost per door, management is typically more effective and profitable, and any improvements made can help to lift the value of many units, not just one. For example, if you put in a pool, you are adding the value of a swimming pool to every unit in the community.

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Related: 4 Ways Technology is Shaking Up Commercial Real Estate (& Why Multifamily Will Pull Ahead)

Control

Multifamily property investors also enjoy more control over their income and asset values. Commercial properties like this are valued on their net income, not comparable sales. Landlords have the freedom to not only adjust rents, but to increase operational efficiency and augment income with factors such as laundry, internet service, and more. You can reposition an apartment building in many ways that are beyond the possibilities available to single family home investors.

Summary

Overall, I like both of these types of real estate investment because of the options above. I don’t think it has to be an either/or choice. Single family homes and apartments have their advantages. It really just comes down to what makes sense to you as an investor.

Investors: What’s your preference, single or multifamily? Why?

Leave your comments below!

Sterling is an multifamily investor specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling w...
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    Rob Saunders from Downey, California
    Replied over 3 years ago
    Good discussion. Another consideration is location; we have found that the right 2, 3 or 4 unit properties in the right locations not only bring higher returns but can actually follow the appreciation curve of the SFR market. Another thought along the lines of what Curt mentions; we think about the number of roofs we have to maintain and insure; a single physical building with multiple income streams can be cheaper to maintain than the equivalent number of separate SFRs. Ultimately it is like all other investing; have a balanced portfolio and educate yourself on which works best for you in the long run.
    Tyler Chartrand Investor from Scottsdale, Arizona
    Replied over 3 years ago
    a good way to wet your teeth is 2-4 units. they can still be lent on as residential and give you a taste of property management as well
    Pinky Soni
    Replied over 3 years ago
    Very nice article…We have started investing in SFR and so far no issues. To all the investors who posted comment above, how do you rapidly increase your portfolio so quickly. Do u all pay cash or finance? Also, what price range do you target? Thanks..
    Holly Emmett Correira Investor from North Dartmouth, Massachusetts
    Replied over 3 years ago
    Here in New England, I find multifamily properties cheaper than purchasing single family homes. Lower purchase price and increased rent. Win win.
    Dan Heuschele Investor from Poway, CA
    Replied over 3 years ago
    I think you did not address thoroughly enough the difference in financing options. MF will require commercial loans which typically are shorter duration (if fixed rate) and higher interest than SFR loans. Besides that one item I think you covered the subject quickly (short artical) and thoroughly.
    Tyler Shigenaga from San Francisco, California
    Replied over 3 years ago
    Can someone leave a post with the pros and cons of the financing SFR vs MF? Sterling mentioned the commercial loans for 5+ units but can someone expand on that topic? I’m sure much of this has to do with the investment strategy but it would be good to hear from experience.
    Andy Much from Cape Cod, MA
    Replied over 3 years ago
    Looking to buy my first MF in the New England area. Prefarrably 2 – 4 units where i can live in one. Can anyone recommend competent and good authorized VA lenders for me. Thanks.
    Andy Much from Cape Cod, MA
    Replied over 3 years ago
    I agree with you Holly generally for the NE area. SFR median price in my neighbourhood is about $270-$340K for about a 3 br. Drive 40 mins away and you could get 3 unit for about $300K. Granted, there is a disparity in neighbourhood quality but they do cashflow if you do the numbers right!
    Georgia B
    Replied about 3 years ago
    You make a really good point that single family homes have a much bigger resale pool than apartment buildings do. My husband and I are thinking of investing in property to rent out. Since we live in a college town, it would probably be easy to resell a small home if we ever needed to.
    Edward Wodziak Investor from Woodridge, Illinois
    Replied about 3 years ago
    In the suburbs of Chicago area MF are just too high of price where they don’t cut 1% rule and they you got to pay for all or some of the utilities and maintenance fee. Where here it is easier to find SFH that make the 1% rule and the tenant covers all the utilities and maintenance. I just cant find any MF in the my area (unless I am willing to go to the D area of Chicago and expect high turnovers)