Single Family vs. Multi Family
Goodmorning my sweet people. I hope you enjoyed your weekend. I wouldn't say Monday is my favorite day of the week, but it's certainly up there. Most of the days feel pretty similar to me nowadays - my schedule for a Monday is more or less the same as my Saturday schedule. I like it that way - it helps me look forward to most everyday and not dread the typical 'bad days.
I make the assumption that the spectrum of people reading this article ranges from 'I've already house hacked my first property' to 'I have never heard of such a thing.'
There are many different ways to house hack your first property, and a key thing to think about going into your first acquisition is if you want a single family or multi family property.
For a single family (also denoted as SF in the real estate world), essentially you would be renting out by the room. If you are acquire, say a 5 bedroom home, you can live in one room and rent out the other four.
In this context, a multi family (also denoted as MF) refers to properties with 2-4 units. In this instance, you would live in one unit and rent out the other units. For the record, let's say each of these units are 3 bedrooms, you could rent them each out by the room, if you so choose.
There are some pros & cons to both of these strategies. I've seen both single and multi family properties perform extremely well but the approach may be slightly different.
Single Family Pros & Cons
Pros
Renting by the room has a higher likelihood to cashflow (renting individually produces more revenue than renting in 'bulk')
Being that you'd be living in the same house as your tenant, it is easier to ensure that you are receiving your rent on time and you have supervision of your dwelling.
It is generally easier to get approved for a single family and the doesn't apply. Also, cash reserves aren't a requirement to attain the mortgage. (Note that this is the case for both single-family and 2-unit properties: 3 & 4 units are a bit trickier)
Cons
- Living with your tenants until you move out
- Will likely have a lease for each tenant which is a bit more complex to manage. If you have 5 bedrooms (and assuming you've moved out already), you might have 5 leases for each of the 5 tenants, as opposed to if you had a 2-unit property where you could just manage 2 leases (however, you could also rent each of the bedrooms in the 2 units if you wanted, but you at least have that flexibility with multi-families).
Multi Family Pros & Cons
Pros
- Live in one unit and rent out the other unit (assuming you don't want to rent out the bedrooms in your unit as well)
- Easier to manage the leases if you are renting out by unit
Cons
- Might be a bit trickier for extreme cashflow because you're charging rents by the unit instead of by room (unless you choose to rent by room)
- You're not living directly with the tenants so there is slightly less supervision (but then again, you're eventually going to move out of the investment property whether it's a single family or multifamily so this 'con' is inevitable)
All in all, the house hacking process is generally the same, but as I noted, there are some slight variations which lead to slightly different strategies. Here are the biggest takeaways:
For SF's, you may have to manage multiple leases if you are renting out per room, which is a bit more tedious than renting out by the unit, but this ultimately presents an opportunity for greater returns.
For MF's, you have the flexibility to either rent per unit, or rent by the room in each of the units. If you choose to rent per unit, you may realize a slightly lower return but this very well may be worth the opportunity cost of easily managing a single lease per unit as opposed to per room.
I hope this article gave you some insight into house hacking a single family vs. a multi family. Of course, this is a high-level overview - there are a bit more specifics with each choice but these are the general things to keep in mind. They both can work extremely well - and they both provide a great opportunity in terms of getting your foot into the real estate investing world.