Multi Family vs SFH Resale?

Question

I would consider a duplex, 4 plex or other multi-family unit. However, in the chance you decided you wanted to liquidate the asset wouldn't it be much harder to move a multi unit versus a Single Family Home?

I am in this for the long run, but let's say an area starts to become less desirable or  another circumstance out of your control arises.

I read the ABC's of real estate. It stated there is less risk with a multi-family due to you have say 8 tenants covering rent instead of 1 in a SFH. However, I didn't really see the book address my question. I would appreciate any thoughts. Thanks.

Account Closed · Answer

In terms of number of buyers, a single-family home could be sold to another investor or an owner occupant, whereas multifamily buildings are typically sold to investors.  If the area starts to become less desirable, it will likely be difficult to sell any type of real estate.

I would probably focus on the area and the local economy a bit more than the type of building.  If you focus on the following, you can probably reduce your risk and not have to worry about the area getting worse for a long time:

-access to public transportation, job and population trends, rent growth, vacant housing stock in the area, quality of school district

For example....If you're planning to invest in a town with one large major employer (say a manufacturer) and that employer goes out of business or has a mass layoff due to an economic downturn, it doesn't matter if you own single families or multifamilies......there isn't going to be anyone to rent your units or buy your property.  99% of the time, a diversified local employment base is better (or atleast one that has many employers that are downturn resistant - health care, education, government, etc.)

These are the reasons I would focus more on the market dynamics than the size of the asset itself.  From an economies of scale aspect, you are typically better off buying multifamily buildings.  However, this isn't always the case.  Hope this helps.

Ryan Ford · Answer

That makes a lot of sense. I appreciate the reply.