Im in the learning phase of real estae investing.Im 65 and was wondering if it is better to invest in multifamily or single family.My theory is single family if empty is not good and at least with multi family if one apt is empty the others can still pay the bills.Am I missing something?
It all depends on what your goals are. They both have their benefits. You are correct, in that you have the benefit of multiple doors and will still have income coming in, if one unit is vacant. Thus making SFR more expensive if you have a vacancy.
There are quite a few investors who started with SFR properties and have been successful with it as well as there are those who started with MF and have been successful. There are definitely economies of scale with MF properties but understanding your goals and knowing the numbers on the properties will give you a better guide as to which to choose.
Hi, @Moe Joseph . I also invest in the Detroit area. Nice to meet you.
There are pros and cons to both SFH and multi-unit:
- Cheaper/lower out-of-pocket cost to get started
- More inventory/more available options
- Easier to sell (whether immediately because you want out or later down the line because you want to recapture your investment) due to the fact that both investors and buyers looking for a primary residence are potential buyers.
- "Easy" to get a loan from most banks.
- If there is a major problem with the property, you only have 1 tenant that it affects (what happens if the hot water goes out or pipe bursts, for example?)
- Higher risk due to vacancy, missed rent, etc
- Typically will cash-flow less than a multi
- Diversified risk (due to vacancy, missed rent payments)
- Higher cash-flow (in most cases)
- Consolidated costs (ie, if your duplex needs a new roof, it won't cost you that much more than if your SFH needs a new roof and cost is split across 2x sources of income)
- Less inventory/harder to find
- Tougher to sell (because typically only other investors buy multi-family; yes there are exceptions to this)
- More expensive (in most cases)
- Tougher to get a loan (if more than 4 units)
- More tenants are affected by major problems (like a burst pipe, etc)
Ultimately it comes down to preference. If you're just getting started, many people find it easier to learn the ropes with a Single-Family. Things will pop-up that you don't expect and sometimes it's comforting to know that your "mistake" is only affecting a relatively "inexpensive" SFH and one tenant vs an "expensive" multi-unit with multiple tenants. That said, if you find a great deal on a small multi-unit and you can afford it, there is more upside.
@Brian Kantor summed it up well. All we can add is sometimes it depends on the "deal" that comes your way.
If SFR or MF - be prepared to go with it:)
@Moe Joseph Agree, Brian's post above sums it up nicely. I've done the best with duplexes overall, at least if one side is vacant you still should be covering the mortgage and without the hassles of larger places.
I also have a 5 unit, so I do get the efficiency of scale. Offset however I have higher insurance, higher interest rate on the mortgage, and more overall maintenance costs. If there's a hole in the sheetrock in the hallway for example, you really can't charge it to someone. Or code requirements can be stricter with apartment building, and items like that.
Hi, @Brian Kantor I'm new to real estate as well looking to start by wholesaling then eventually working my way to buy and hold. Thanks for breaking it down, by far the bestt example I've seen or had thank you￼￼.
Thanks for all of the great information guys.Very helpful.