Appreciation on multifamily versus single-family?

Question

How do multifamily properties (2 to 4 units) appreciate compared to single-family homes?

Let’s just say a home was $150,000 in 2019. What would it look like today as a multifamily versus single-family?

Allan C. · Answer

MF properties are viewed as businesses, thus often priced as a multiple of annual income potential (like any other business, whether you're selling a donut shop or a tech company). An operator can change the operating income of a property by increasing gross revenue or reducing expenses. Every change in operating income is multiplied by the earnings multiplier for that asset class.

SFH assets are not sold on an income multiplier. You can sink $200k into a SFH and only recovery $200k. If you put money into a MF property, you'll likely recover a multiple of it if done correctly.

Chris Seveney · Answer

Last 2 years single family has continued to increase due to limited supply even as rates are where they are (which is not actually high). Multifamily experienced a huge downturn while single family was still doing ok. Multifamily is recovering and as rates start to slightly come down more multifamily deals are being reviewed. Single family has more stabilized as there is not enough people who can afford homes.

The purchaser is two very distinct types of groups who buy MF vs. single family and single family is bought to own and occupy, MF is bought to generate money. So they also have very different use cases.

Matthew Hull · Answer

I guess I would ask the question in the context of houses that are rentable without the need or even opportunity to value add.

I ask because the price bubble we are in has left rentable house prices elevated compared to rental rates. Add in high interest and the 1% rule doesn’t even work if you can get a house that rents at 1%. That is fine on SFR which can be sold as rentals OR owner occupied, so you can shift your target market and still sell. But a multi-family is really mostly targeted towards investors. And for them, the numbers gotta work - what you think your house is worth because of appreciation kind of doesn’t matter if investors can’t make the numbers work.

I would have thought multi-family appreciates in proportion to rental rates, and in concert with interest rates, which would not parallel how SFH appreciates.