Single Family vs. Multi-Family - ANYONE doing Single Family?

Buying & Selling Real Estate
8yFollow

Single Family vs. Multi-Family - ANYONE doing Single Family?

Cynthia Oistad
Rental Property Investor · Anchorage, AK · Member since 2018 · 34 posts · 26 votes

Is anyone out there seeing cash flow with single family home investing? Are we ignorant to avoid cash-flowing multi-family properties?

Hi Everyone!  My husband and I are newbies to real estate investing and we are trying to learn as much as we can!  When we purchased our primary home, we decided to rent out our first home (a single family duplex). We have been able to self-manage it and keep our costs relatively low and the home is paid off this year so we are seeing good monthly cash flow.  We are going to close on another single family 2BR/2BA property in Las Vegas this fall.  Because we only have experience self-managing the ONE single family town home for past 9 years,  we lean to acquiring Single Family homes because it is what we know.  With single family rentals we like that the quality of tenants are higher and we don't have as many issues with non-payment, eviction, vacancy, tenant issues, and overall hassle for us as owners.

However, It seems most Bigger Pockets and Real Estate education points to multi-family being a more solid investment for cash flow, due to economies of scale, cash flow spread across multiple units, vacancy not all at once, etc. We would of course use a management company if we were to buy a multi-family building to lessen the stress/hassle of owning the property. 

 Can investors make good cash flow solely off a portfolio of single-family rental homes?  or do we really need to start considering multi-family properties (w/ a reputable management company)?

8Reply
490 views

Most Popular Reply

Terrell Garren
Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
8y

My "dead equity" in a portfolio of debt free SFHs allowed me to retire early and have an enjoyable business that cash flows life.  Obviously, choices are based on goals, savings, age, etc.  I quite enjoy managing 17 or so SFHs. I have no desire to manage multi-family buildings.  If I croaked tomorrow, my kids would appreciate inheriting SFHs.  They would skip my funeral if I left them an apartment building. 

24Reply
See this reply in the discussion

81 Replies

Jump to latestLatest
  • Paul Choi
    Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
    8y

    Can investors make good cash flow solely off a portfolio of single-family rental homes? Yes

    or do we really need to start considering multi-family properties (w/ a reputable management company)? Only if it fits within your long term goals.

    Many investors in and out of BP make money owning SFH rentals. Some also make money in commercial retail, storage facilities, MFH, etc. Point is that the beauty of REI is that there are multiple avenues.

    You have take a 30,000 sf view and see what your long term goals are and work towards it. Is it to own a few SFH, pay them off and enjoy cash flow into retirement? Or is it to grow your portfolio as much as possible with as many units as possible with good properties in good locations to have many times the potential income when compared to the first idea?

    The SFH route is manageable, easier to chew and the network of players (agents, lenders) are familiar. But there is resistance when scaling and trying to go from 10 SFH to 50 SFH.

    The MF route, there is a learning curve, alot of hustle and research required, re-networking with commercial brokers, lenders, etc., and needs to be treated like a straight up business.  It's all numbers.  But you can go from 10 unit MF to 50 units fairly easily given that you have established a track record and experience.

    Personally, I would rather have a 10 unit MF netting $200/unit than 2 SFH netting $1000/house. The value of the SFH is soooo out of my hands, it would scare me where as MF value is determined by how much income it generates. I'm a MF investor so I may be a bit biased :)

    11Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    8y
    Oddly enough there are lots of people on here willing to borrow over a hundred grand on a house. To make 100$ a month. Not me .. total waste of time and money in my view . I’d much rather own a multifamily . The paperboy makes more than a hundred a month
    6Reply
  • Paul Choi
    Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
    8y
    Originally posted by @Dennis M.:

    Oddly enough there are lots of people on here willing to borrow over a hundred grand on a house. To make 100$ a month. Not me .. total waste of time and money in my view . I’d much rather own a multifamily . The paperboy makes more than a hundred a month

     That's so true LOL

    Need at least 10% cash on cash ROI to make it worthwhile to even look at it. Any property can cash flow positive if you throw enough money at it. It's the ROI that matters.

    4Reply
  • Account Closed
    Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    8y

    @Dennis M.   If the property values double in 3-4 years, we make much more than $100 a month.

    5Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    8y

    Okay but If it doesn’t then you don’t ! What if they build a low income housing complex down the street and your value plummets ? What if they build a tire recycling plant near your house or a prison ?  Say you make 100$ a month for two years with no vacancy and the furnace goes out or the hvac unit and the bill is 3,000$ ? That’s a real possibility . Now you just lost 2 and half years income over an appliance failing .what if the roof needs replaced .. I get your point  Friend .. but it’s more likely you will have a big ticket expense in 3-4 years than it is your property doubles in value . It’s a feee country You can bank on appreciation..personally  I’ll take that good cash flow each month and if I happen to get appreciation then that’s icing on the cake . 

    5Reply
  • Sherwin Gonzales
    Rental Property Investor · San Francisco, CA · Member since 2015 · 236 posts · 156 votes
    8y

    Great post @Cynthia Oistad! If you think of real estate investing as a business, which it is, the more customers you have the better right? The quality of tenants can be managed regardless if it's SFH or MFH. You can have bad tenants in a SFH and great tenants for a MFH. Also, if your tenant vacates your SFH, you're stuck covering the mortgage until you find another tenant. But if a tenant vacates a MFH, at least you have other tenants in place to cover or at least help cover expenses until you find another tenant.

    I'd rather manage 1 roof with 25 tenants than 25 roofs. 

    7Reply
  • Paul Choi
    Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
    8y
    Originally posted by @Dennis M.:
    Originally posted by @Account Closed:

    @Dennis M.   If the property values double in 3-4 years, we make much more than $100 a month.

    Okay but If it doesn’t then you don’t ! What if they build a low income housing complex down the street and your value plummets ? What if they build a tire recycling plant near your house or a prison ?  Say you make 100$ a month for two years with no vacancy and the furnace goes out or the hvac unit and the bill is 3,000$ ? That’s a real possibility . Now you just lost 2 and half years income over an appliance failing .what if the roof needs replaced .. I get your point  Friend .. but it’s more likely you will have a big ticket expense in 3-4 years than it is your property doubles in value . It’s a feee country You can bank on appreciation..personally  I’ll take that good cash flow each month and if I happen to get appreciation then that’s icing on the cake . 

     agree.  appreciation "investing" is closer to speculating on market swings.  Cash flow is king and any appreciation is the cherry on top.

    6Reply
  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    8y
    Cynthia Oistad The thing that a lot of people on here don’t mention is that single family investing is accessible to people who aren’t already wealthy.
    Podcast Guest on Show #21
    15Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    SFH investing is a much higher risk due to the known issues of having only one tenant per property. Purchase price per tenant is higher due to market being driven by home buyers and appreciation play is also high risk since investors can not predict th efuture. Multi unit properties are value driven by rental income.

    The majority of SFH investors are buying their positive cash flow through pay down of their mortgages (dead equity). Multi family investors achieve positive cash flow that is generated by the property.

    2Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    8y

    My "dead equity" in a portfolio of debt free SFHs allowed me to retire early and have an enjoyable business that cash flows life.  Obviously, choices are based on goals, savings, age, etc.  I quite enjoy managing 17 or so SFHs. I have no desire to manage multi-family buildings.  If I croaked tomorrow, my kids would appreciate inheriting SFHs.  They would skip my funeral if I left them an apartment building. 

    24Reply
  • Chris Youssi
    Rental Property Investor · Caledonia, IL · Member since 2015 · 290 posts · 213 votes
    8y
    I’m with Terrell. I have owned both - far n away I prefer SFR as there is no ( currently own 30 SFR N 35 attached townhomes - Condos ) Comparison in my opinion. Following are my reasons : 1.) much better appreciation 2.) more stable tenants 3.) higher rents = higher returns. 4.) I average $300 per month cash flow per unit with an average mortgage amount around $65,000. All my properties are B couple C + with 65% LTV 5.) condos and townhomes are similar in that they are about 65% LTV however they only average $150 per month cash flow and the average loan amount is $100,000 . When we purchase a property because of our discipline with sales price we rehab them and fix them to the 9’s so there is no deferred maintenance issues. Our approach has been successful as we have achieved al this over the last 24 minutes. I’m not saying it’s perfect but it works for us. Best wishes Chris
    8Reply
  • Chris Youssi
    Rental Property Investor · Caledonia, IL · Member since 2015 · 290 posts · 213 votes
    8y
    K that would be awesome 24 minutes ??? That would be months !
    4Reply
  • Cynthia Oistad
    OP
    Rental Property Investor · Anchorage, AK · Member since 2018 · 34 posts · 26 votes
    8y

    thanks everyone!  These are really great responses and interesting to hear from both sides!! 

    1Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    8y

    @Cynthia Oistad You get a lot of pro's and con's to both strategies: SFH and MFH ownership! At the end of the day, you need to weigh it and determine which strategy will work best for you! What do you personally favor and believe in. If there's a strong preference, then go for it!

    Best of luck!

    0Reply
  • Paul Choi
    Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
    8y

    @Terrell Garren That's awesome! congrats! Like I mentioned before, some people make money with SFH, some with storage, some with commercial retail, etc...it all depends on life goals and strategy that works for you.

    @Chris Youssi

    @Chris Youssi  Congrats to you as well!  Just wanted to comment:

    1. Appreciation - I'm sure you know, SFH appreciation is based off of market comps and not how much income property generates. Appreciation is not something you bank on unless you have a crystal ball :) We all know what happened in 2008.

    2. Stable tenants - yes, SFH tend to have tenants who stay longer, less transient. Also, they are usually folks who are 1 step away from purchasing their own home. Meaning they are working on saving up, fixing their credit, etc. so they pay their rent on time.

    3. Higher rents - that is debatable. For example, you can buy a MF for $80k a unit and charge $900 rent. Or you can buy a $240k SFH and charge $1800 rent. So your acquisition cost for SFH is 3x higher but rental gross is only 2x. If you can get 3x or 4x, then it follows your comment but that's hard to do at day 1. This is just based off what I see in the markets I'm looking at.

    4. So that is 10.2% cash on cash ROI with simple calculations. That is good returns. But man... I would hate to do 30 SFH transactions, loans, appraisals, etc. Plus 5x-10x the deals you would have to look at to acquire that many. I would rather buy 1 30 unit MF that provides those returns (yes, they are out there).

    5. That's 3.3% cash on cash ROI on townhomes and condos....not that great. I hope the net positive cash flow takes into account PITI, vacancy and some capex/maintenance, prop management (unless you manage all them yourselves). Expenses can range from 30-40% of gross rents before debt service.

    3Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    I have only done single family so far and will continue to do so for probably 2 more years. Then I’ll switch to multifamily.
    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    The biggest issue with investing in SFHs, aside from a adjustment in the market stealing your equity, is that very few SFH investors accurately estimate expenses. Few actually know how long they will hold the property and therefor have no possible way of calculating cash flow, based on expenses, until the day they sell. They will usually throw out cash flow number based on yesterday and todays expenses and very rarely actually are using a theoretical 50% expense ratio the majority of SFHs fall under. They have not replaced the roof, furnace, flooring, water tank, windows, siding etc. and have not yet had a eviction or extensive tenant damage therefor will not know cash flow until they sell. If a SFH is sold in a down market the effect is magnified. Apartment complex, multi, duplex or SFH you know your cash flow the day you sell.

    The only standard for spit balling cash flow is the 50% expense rule on SFHs. It is slightly lower on a multi unit. If a investor is using actual expense numbers they have no idea what their true cash flow will be over the life of their property. If they are also counting todays appreciation numbers they are investing with rose coloured glasses. Most will actual be buying their cash flow through paying down of the mortgage. Cash used to pay down a mortgage is prevented from achieving greater returnes than the prevailing mortgage interest rates.

    It is far safer to invest in properties that are value driven based on rental income (in my opinion). However as we all know opinions in this business are bias driven individual preferences.

    0Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    8y

    @Dennis M. , a $100k single family cash-flowing $100 a month makes MORE than $100 a month. On a 15 year, 75% LTV loan, it is making on average $416.66 in equity by paying down a mortgage, PLUS depreciation on the house!

    So, in some ways its better to have a $100k house that cash-flows $100 than a $25k house that cash-flows $100!

    3Reply
  • Paul Choi
    Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
    8y
    Originally posted by @Kevin Sobilo:

    @Dennis M. , a $100k single family cash-flowing $100 a month makes MORE than $100 a month. On a 15 year, 75% LTV loan, it is making on average $416.66 in equity by paying down a mortgage, PLUS depreciation on the house!

    So, in some ways its better to have a $100k house that cash-flows $100 than a $25k house that cash-flows $100!

    The portion that is "paying down the mortgage" is not a return on your investment so it should not be calculated as such.  It's basically socking away money, like savings.  For example, $500 income to pay off a $500 debt is not income. It's recaptured equity that you took out when when buying the house.  $600 income and paying off a $500 debt has an income of $100.

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    @Paul Choi

    Correct paying down a mortgages is not income and can easily vanish with a change in the markets. To realise it as profit, in theory, you would need to refinance and pull it out to reinvest or sell the property.

    2Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    8y

    @Paul Choi, those are semantics. If you pay cash that money is realized as cash-flow. Instead its realized as equity.

    In the grand scheme of building wealth both are creating value. The difference is when and how you can access and utilize that value.

    You don't have to assign value only when money enters your pocket. $500 income to pay $500 in debt doesn't generate an income, that is true, but when you sell the asset for $500, you surely do realize the income.

    When evaluating an investment you don't only look at what money enters your pocket in the short term, you look at the Total ROI and when you figure ROI from purchase until sale, the equity built is surely a factor.

    7Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    8y

    @Thomas S., I agree with you. However over the long term, the expectation is that if you own a portfolio of properties that they will either hold a stable or more likely modestly increasing value.

    So, while paying down a mortgage isn't generating income, it is generating a value to be considered when evaluating a long term investment.

    1Reply
  • Paul Choi
    Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
    8y
    Originally posted by @Kevin Sobilo:

    @Paul Choi, those are semantics. If you pay cash that money is realized as cash-flow. Instead its realized as equity.

    In the grand scheme of building wealth both are creating value. The difference is when and how you can access and utilize that value.

    You don't have to assign value only when money enters your pocket. $500 income to pay $500 in debt doesn't generate an income, that is true, but when you sell the asset for $500, you surely do realize the income.

    When evaluating an investment you don't only look at what money enters your pocket in the short term, you look at the Total ROI and when you figure ROI from purchase until sale, the equity built is surely a factor.

    When running P&L's for MF properties we look at acquiring, we look strictly at net cash flow and do not account for debt pay down as part of income. If we did, the ROI would be greatly skewed as we would be kidding ourselves. Then we run a separate analysis on the pro forma exit strategy and see what the additional profits would be if we were to sell. That is a separate analysis because if our strategy is to sell 5-10 years into the future, our best guess is all we have. Don't have a crystal ball. We may never sell and just collect cash flow.

    Remember, equity is money locked up, trapped, until it is released thru refi or sale.   Equity can fluctuate quite a bit over a span of years.  It can be negative.   Income is a monthly occurrence.  Lenders see this and run their numbers this way.  Investors need to run their numbers thru the lenders' eyes because that's how you can partner up with them to buy deals.

    2Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    8y

    @Paul Choi, I'm not saying they are considered equally because you are correct they have different attributes. The equity is locked up.

    Yes, equity can fluctuate, so its value is based on some assumption of appreciation (positive or negative). Cash-flow is also based on assumptions such as market rental rates, vacancy rates, maintenance costs, etc. Any of those can fluctuate and negatively affect cash-flow.

    Also, if your time horizon is 5-10 years, you are right to value cash-flow more, but if like me you will hold your properties 15-20 years or more, then equity has some weight.

    I'm not gambling on appreciation, but I do assign a value on the benefits of owning and holding real estate outside of cash-flow as well because there is a value there and it isn't the same in every deal.

    0Reply
  • Paul Choi
    Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
    8y
    Originally posted by @Kevin Sobilo:

    @Paul Choi, I'm not saying they are considered equally because you are correct they have different attributes. The equity is locked up.

    Yes, equity can fluctuate, so its value is based on some assumption of appreciation (positive or negative). Cash-flow is also based on assumptions such as market rental rates, vacancy rates, maintenance costs, etc. Any of those can fluctuate and negatively affect cash-flow.

    Also, if your time horizon is 5-10 years, you are right to value cash-flow more, but if like me you will hold your properties 15-20 years or more, then equity has some weight.

    I'm not gambling on appreciation, but I do assign a value on the benefits of owning and holding real estate outside of cash-flow as well because there is a value there and it isn't the same in every deal.

     Yes, agree with your points. I think we just disagree with what should be on the books :)

    2Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free