Single-Family v. Multi-Family Homes: Which Should I Buy as a Rental Property?

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Good news! They are both great investments. As long as the numbers on a property work, and as long as you are educated in terms of your buying criteria and the risk level you are taking on, both single-family homes and multi-family homes are great to add to your rental property portfolio.

But if you are only trying to buy one property right now, which one should you go for? If you are buying your very first rental property, which one should you start out with?

How about an easy breakdown of the pros and cons of each to help you decide? But first, let me clarify some terms.

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Definitions: Explained

There are a few terms you need to understand when thinking about single-family homes and multi-family homes and differentiating between them for investment purposes.

First, know the acronyms that you will see used for both.

  • Single-Family: Typically you will see the acronyms SFR (single-family residence) or SFH (single-family home). Either one is fine. I will use SFR in this article for no reason in particular; I just like it better.
  • Multi-Family: Following the same pattern, you will typically see either MFR (multi-family residence) or MFH (multi-family house) for these. To follow suit with my choice of SFR, I will also use MFR for this article.

Now that I can type a lot faster because I can use acronyms instead of full words, let me explain another differentiation.

  • Residential: Residential properties refer to places in which people live.
  • Commercial: Commercial properties are ones that cater to businesses or organizations.

Unfortunately, these two terms start intertwining pretty quickly, so here comes yet another distinction.

  • Residential SFR: Residential property with only one unit. Meaning — like your typical house, rather than a duplex, triplex, etc. One unit means technically one set of people living there (set can mean a single person, a family, roommates, etc.)
  • Residential MFR: Residential property with either 2 units, 3 units, or 4 units. So that would be 2, 3, or 4 separate units, meaning 2, 3, or 4 sets of people living there.
  • Commercial MFR: This is a residential property containing more than 4 units. See where it’s a little confusing now? It’s still residential units, but it falls under the commercial umbrella. Commercial buildings, as stated above, more often deal with office or business spaces, but in this case it is still referring to residential properties. I guess because the assumption is that anyone buying this size of property plans to run it like a business? I have no idea. Either way, apartments for example fall into this category.

The primary time the residential vs. commercial terms come into play is when you are talking about financing. Residential loans are very different from commercial loans, so that can play a major factor in deciding which route to go.

Related: Why I Invest in Single Family Homes Over MultiFamily

Work backwards with me a little now, starting from scratch. You want to buy a rental property and you have to decide what kind to buy. Assuming you are buying a residential property (tenants renting a living space and not an office space), you can decide between an SFR and an MFR. But if you want to go the MFR route, then you have to decide if you want a “residential MFR” or a “commercial MFR,” meaning a building with 1-4 units or a building with more than 4 units. Commercial properties operate differently in terms of financing and other factors, so for this article I’m going to stick with residential MFRs only. However, the pros and cons of MFRs do pertain a lot to commercial MFRs as well, so you can use that in your considerations.

Pros and Cons of SFRs and MFRs

As with just about anything in real estate, or in life, there are pros and cons to both sides. I want to again preface this pros and cons list by saying that these things only matter assuming the property itself is a good deal — the numbers suggest positive cash flow, it fits educated buying criteria, and proper teams and experience are in place to manage the property.

If all of those things are intact, and now you have the choice between a SFR and an MFR, this list can come into play to help you decide which one to buy. Or use it to determine if you want an SFR or an MFR first, and then determine where the other factors (cash flow, etc.) fit.

Here we go! Pink stars refer to “pro.”

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Property Cost

The cost per unit will always be cheaper with an MFR. The overall cost of the whole property might be more than an SFR, but the cost per unit is lower. So you are getting more bang for your buck in terms of how many “doors” (the cool person’s lingo referring to units) you get.

Financing

This one only matters if you are taking out mortgages on your rental property. Banks limit the number of mortgages you can have — typically at 10 if you have really good qualifications, but oftentimes less than 10. If you are only buying SFRs, this will max you out at 10 properties.

But what if you buy 10 4-unit MFRs? Then you end up with 40 units! Huge difference there, and again dependent on your financing ability, but no one can contest that you can buy more “doors” using mortgages if you buy only MFRs.

Maintenance Expenses

Because of the shared walls, the shared yard, and whatever else the units in an MFR share, maintenance expenses are often reduced because more similar amounts of material and labor can cover more units at once. One example would be plumbing. Basic plumbing issues may be individual to the units (like clogged toilets), but what about the internal plumbing?

Let’s say one person has 4 SFRs and another person has one 4-unit MFR. If the person with the SFRs has to replace the internal plumbing on all the properties, that will be four completely separate plumbing jobs. If the person with the 4-unit MFR has to replace the internal plumbing, that will be only one (bigger) plumbing job. So that person ends up with essentially four plumbing jobs done way cheaper than the person who has to pay for four plumbing jobs all separately.

Management

Using the same example of the 4-unit properties (4 SFRs or one 4-unit MFR), you either have four properties to manage or one property to manage. Granted, the 4-unit MFR will be more intensive to manage because it will have more tenants calling in with maintenance calls and more in the paperwork since it includes four units, but it is still only one building and one address.

It would be easier to manage the one building, or hire a property manager for the one building, and shuffle all the paperwork than it would be to scurry around to four separate buildings with four separate addresses. This includes taxes, for example — file four separate properties on your tax return, or file one property on your tax return. So the MFR is better for ease of management.

Vacancy Expenses

One of the best benefits (next to the financing) to owning an MFR over an SFR is vacancies. Why? Because if one unit in an MFR goes vacant, you are still receiving income from the other units (presumably) so you aren’t at a total loss for income. This is especially helpful if you are paying mortgage payments each month. Zero income from a rental property is tough with a mortgage payment because then the mortgage payment has to come straight out of your pocket.

But if you have an MFR, the income from the non-vacant units can often cover that mortgage so it doesn’t have to come out of your pocket. There is a way to have this same benefit with SFRs, however, which is to own more than one. If you own 4 SFRs, the income from the other three can make up for no income due to vacancy in one of the properties. But for simplifying for the idea of buying one property, MFRs make more sense for making up for vacancy expenses.

Cash Flow

Most often the returns on MFRs will show higher than SFRs. It depends on the location in which you are looking and assumes you are looking at good deals, but usually the returns will be higher on MFRs. It is really a trade-off for some of the downsides to MFRs, and those returns can differ in reality from what is originally projected due to those downsides, but cash flow is often higher on MFRs.

Location

Not always, but usually, SFRs will be in more desirable locations than MFRs. Think suburban vs. urban if you want a more dramatic picture. Think of subdivisions containing only SFRs vs. areas of only MFRs. Better areas often mean better safety, better appreciation, higher-quality tenants, and fewer headaches. SFRs take the cake on this one.

Tenant Quality

This one isn’t a guaranteed factor of either SFRs or MFRs, but there is a better chance of having better quality of tenants in SFRs than MFRs. Again, this is completely dependent on location and quality of property, but typically SFRs attract longer-term tenants who are looking for a home to feel like their own. Versus MFRs, which few people see as their own (unless it’s a nice condo, but a nice condo will doubtfully cash flow for an owner). Typically, it is a higher-quality of tenant looking for somewhere to view as their own and take care of, and once they are in and seeing the house as their own, they are likely to take better care of it.

MFRs typically attract more transient tenants who likely won’t stay as long and are less interested in treating the property as if it is their own. Tenant quality goes a long way when it comes to owning a rental property (repairs, vacancies, headaches…) and can dramatically affect the anticipated returns on a property. It is possible to have perfectly good high-quality long-term tenants in an MFR, but the chances are better with an SFR. Just the same, it is easily possible to end up with horrible tenants in an SFR. It’s all about risk factor and just at looking at the chances of good or bad tenants — SFRs win out on this one.

Tenant Turnover

As just mentioned, MFRs tend to attract more transient tenants rather than long-term tenants. This may not seem like a big thing, but tenant turnover is arguably the biggest expense to a rental property owner. Expenses include lost income from no one in the property from one to a few months, repairs to the house in preparation for new tenants, tenant placement (if paying a property manager), and legal fees if the turnover is due to an eviction.

The best thing that can ever happen to a rental property owner is to find good quality tenants who stay for a long time. Long-term tenants are gold for an investor. As soon as you are replacing tenants every year or two, your expenses can jump pretty heavily. Same as with tenant quality, it is not a sure thing that SFRs will bring in only long-term tenants and MFRs will only bring in transient tenants, but it falls onto a scale of risk.

Appreciation

If you are looking for appreciation in your rental property, SFRs will almost always appreciate more than MFRs. MFRs are typically better for cash flow, and SFRs are typically better for appreciation. Not much else to tell you on that one.

Exit Strategy

This is a term not as common to newer investors as it should be. Exit strategy refers to your end game. What are you ultimately planning to do with this rental property you are buying? Maybe you don’t know exactly what you plan to do with it for certain (totally reasonable to not predict the future), but what will you be able to do with it should you need to do something?

For instance, let’s say you decide for whatever reason you need to sell the property. Who will/can you sell it to? SFRs win out on this one because you have multiple options for selling it. You can sell it to someone looking to buy a primary home of their own, you can sell it to an investor who wants to make it a rental property just like you did, or if you want to get really creative, you can lease-to-own it to your current tenants and let them buy it from you. You have several options.

Related: The Pros and Cons of Single Family Rental Properties

Whereas with an MFR, typically the only people interested in buying MFRs are investors. And what do investors always want? A deal. You doubtfully will get an investor to pay top dollar for your property, whereas you can easily get top dollar from a primary homebuyer. So in terms of selling your property, you have more options with an SFR than an MFR, not only in terms of how much you can sell it for, but who you can sell it to (larger pool).

So What’s the Verdict?

The verdict is there are pros and cons to both SFRs and MFRs as (residential) rental property investments. The good news is, as stated before, both are great investments. In my opinion the cons for each aren’t horribly bad. SFRs definitely have perks over MFRs, but just the same, MFRs have perks over SFRs. The key term to think of here is “trade-off.”

In any investment, there will always be trade-offs. MFRs may give you better cash flow, but that higher cash flow only just makes up for the potential location and tenant risks and potential lack of appreciation and exit strategy. You typically get higher quality with SFRs, but you’re going to take a hit to the cash flow. And the one thing I can’t say enough is that none of the factors mentioned, or the pros and cons, are guarantees with either. Look at them more like trends to help you assess risk factor.

Ultimately, which type of property you decide to buy needs to be based on your comfort level. If you are a really nervous first-time buyer and want as little risk as possible, maybe steer towards the SFRs. If risk doesn’t scare you and you only care about maxing out cash flow, go for an MFR. If you are buying more than one property, buy some of each! Diversification is great. Have some of both so you spread the benefit and risks more.

For you experienced investors, what’s your preference for buying rental properties? SFR or MFR? Why? I’d also love to hear from flippers—which do you usually buy and flip?

Leave me a comment below, and let’s discuss!

About Author

Ali Boone

Ali Boone(G+) left her corporate job as an Aeronautical Engineer to work full-time in Real Estate Investing. She began as an investor in 2011 and managed to buy 5 properties in her first 18 months using only creative financing methods. Her focus is on rental properties, specifically turnkey rental properties, and has also invested out of the country in Nicaragua.

49 Comments

  1. David Krulac

    Ali,
    My experiences of some decades is a bit different.

    Financing:
    Most the financing that I have secured is residential up to 4 units. I’ve had about 50 mortgages, so that mythical 10 mortgage limit in actuality does not exist. And I’ve bought and sold over 800 properties. After you get to your 10 limit (Fannie & Freddie), which btw the way is a stupid regulation since a person with ten $10,000 mortgages is viewed as less credit worthy that a person with one $1,000,000 mortgage. Any way after you get to ten, then your spouse or partner can get another ten. If you have more than one partner or spouse, then each of them can get 10 more mortgages.

    After you get all the conforming Fannie & Freddie mortgages that you can, then you can get portfolio mortgages, typically from a brick and mortar local or regional bank or credit union. The interest rate is slightly higher. I inquired about one such mortgage recently and the fixed rate mortgage was 3/4 of one percent higher. A minimal increase of less than 1%. I’ve belonged to maybe a half dozen credit unions and have found their lending policies to be some what favorable. They will often lend when banks will not. The will lend on vacant land at 80-90% LTV, and have funded properties that I have sold to the end buyer.

    Vacancy:
    I currently have multiple 30 year tenants. I also have a 20, 16, 14, 12, and several 10 year tenants. SFH tenants tend to stay longer, at least in my experience. So vacancy is much less of an issue with SFH over apts. I did lose a 21 year tenant when I sold them a larger house. And I lost several 4 year tenants who bought their existing rental house from me. And I did lose several 7 year tenants to the $8,000 first time home buyer credit. If there were not the $8,000 credit, I believe those tenants would still be renting from me.

    Maintenance:
    SFH tenants just take care of more maintenance. They cut the grass, they shovel the snow, they change their own light bulbs. And I have several properties where the SFH tenant hires and pays for their own handyman for minor maintenance. Those things have NEVER happened in the apt rentals, at least in my universe. For apts I pay thousands a month for lawn and snow, so to NOT have to pay those expenses is a big deal. I also think that SFH tenants take better care of their rentals than more transient apt tenants.

    Utilities:
    SFH tenants pay more of their utilities than apt dwellers. All SFH tenants pay for at least heat, electric and water, and some also pay for sewer and trash. None of my apt tenants EVER paid for water, sewer and trash. It used to be that water sewer and trash were very minor costs, At one time water was $10 a quarter. They now bill monthly and we’ve had bills over $1,000 a month. sewer and trash also used to cost much less, now cost much more. I like it better when tenants pay as much of the utility bills as possible. I’ve seen studies that show when the tenants pay the utilities themselves, usage drops by at least 20%. so tenants paying utility bills themselves besides a financial saving is also an ecological saving.

    Rents:
    Rents are higher for SFH than for apt. Typically the SFH is a 3 bedroom, so it is larger. Typically the apts. that I have are 1 or 2 bedrooms, so you would expect higher rents for larger properties.

    Buying financials:
    I recently bought a $34,000 house that I rent for $1,250. There are fewer apts. available in my area that are priced at less than $50,000 a unit, there just are. And in general there are many more times SFHs available as there are apts. to buy. Awhile ago I did a study here and SFH sales were over 90% of the volume of sales and apts. were less than 10%. There are just more pickings for SFHs than there are for apts. If there were more $50,000 per unit or less apts. available and their rents were as high, I’d buy more apts., but that is just not the case. In one year I bought an sold 74 properties, none were apts. because I could not find any apts. that were as good as the other deals that I found.

    Selling financials:
    SFHs are way easier to sell. All of the rental houses that I have sold, except for one, were sold to owner occupants. O/O buy properties based on comps and NOT of income generated. It is a form of arbitrage to buy a property based on income, then sell it based on comps and not income. When you buy an apt, you buy it based on the income generated and then when you sell it you sell it based on the income generated. Same market factors going in as going out. For SFHs, most buyer, the O/O buyers, are buying based on comps and selling based on comps. I’m buying based on the income generated and selling based on comps. Buying and selling apts. is dealing in the same market, and yes you can increase the rent and lower the expenses and increase the bottom line so that when you sell based on income, you sell for more than you paid. But with SFHs, I’ve already lowered the expenses by paying less utilities and less lawn and snow maintenance from the get go. Then when I go to sell I’m selling on comps and not on income because my typical buyer doesn’t know or care about the income generated because they are owner occupants.

    I’ve bought both. I own both. And I like both.

  2. Ali,

    Great article. We have buy and hold rentals and do a good many fix and flips each year. So far we haven’t gotten into the MFR market yet. I do want to start buying some smaller MFRs soon. I do like the cash flow aspect of the MFR. However, in our market, our SFR rentals cash flow well. We typically see at least a 15% cap rate on our SFRs. In talking with friends that have MFRs in our area, the turnover is much higher. Of all of our SFR rentals, we only have two properties that do not have multi-year tenants in place. Even the properties that we manage for other investors have the same low turnover rates. That’s definitely a plus to SFR rentals!

    Thanks for laying this comparison out there. Great info for all to consider!

    Clint

      • Clint Bolton

        We are in the Memphis TN market. We have some properties in Memphis but the majority of our best performing properties are in Desoto County Mississippi (a Memphis suburb) which is just across the state line from Memphis. We have lower property taxes and high rent rates. Unfortunately, we’ve had several large hedge fund buyers purchasing in our area over the last year so the competition has been a lot more stiff lately but there are still deals out there if you know where to look!

        • Ali Boone

          Oh yeah, I was going to say Memphis is impossible to get 15% caps on these days since all the hub bub there over the last several years. Very cool you find a niche area nearby!

  3. Timothy Trewin

    All,

    Great article and responses. I continuously go back and forth in trying to figure out what is my better option in making my first purchase. To me a MFR seems like in the long run a possibly better deal as the additional cash flow would be more helpful in building up reserves to purchase additional properties, but I wonder just how much of that is eaten away because of transient tenants. I appreciate the article and responses as it gives me and others more to think about as we move forward and become experienced veteran investors as well.

    • Ali Boone

      Great thoughts Timothy on pros and cons. One option, if you are planning to buy more than one property, is buy one of each and evaluate their performances. The transient tenant thing can be mitigated to an extent with good management in place, so hopefully it’s not a yearly thing. If that’s the case, that really helps.

  4. Nathan Emmert

    I’m currently struggling with this decision prior to hopping back into investing here in Michigan. I’ve always been a multifamily guy in Utah… and I understand the merits, but the turnover rates and tenant quality are starting to get to me.

    Here’s the struggle… in major CAPEX, it’s great to have the higher rent rates to take care of them. Having 4 rents pay for 1 roof is great… but in minor CAPEX it flips the other way. Would you rather have 1 HVAC, 1 hot water heater, 1 fridge, 1 stove… or 4 of each?

    The other thing I struggle with is risk. I had a unit in a 4 unit building get completely trashed… someone got back on the needle and hell broke loose… but to get the unit back rent ready, it’s maybe $3,000… AND, while I’m doing that work, I have 3 other units rented. In a SFH, if someone goes APE on it… you are looking at a LOT more than $3,000 of damage. How do you balance that risk?

    I’m leaning towards SFH… just to get rid of the smaller bills (water, snow, grass, trash, etc)… but that risk of 1 bad tenant still causes me second thoughts.

    • Hi Nathan,

      Definitely some legitimate concerns there… In my experience the main thing you can do to avoid an SFR being completely destroyed by a tenant is thorough applicant screening in the beginning. We are fairly strict on our qualifications. Sometimes it takes a bit longer to get a tenant in place because we usually have to reject a few applications to get a good one but it pays off in the long run (at least for us it has). Thus far, we’ve never had a property destroyed, in over 5 years of owning rentals and managing other people’s properties. Not sure what your state’s landlord/tenant laws are but in our state they are more in favor of the landlord so if we do have a non-payment or someone not taking care of the property, it’s fairly easy to get a quick eviction. If you are on top of your game with posting notices and follow up, you can evict a tenant within about 20 to 30 days here.

  5. karen rittenhouse

    Hi Ali:
    Your articles are always so informative! Love the way you’ve laid out fabulous pros for each investment class.

    We personally prefer SFR. We have a number of duplexes and 4 plexes but, in our area, single families are just so abundant – easy to buy, easy to fill, and easy to sell making the multiples less attractive, over all. However, we’ll take either one when the numbers work!

    Also, we buy most of our SFR in areas where they will appreciate. The more doors on a property, the harder it seems to be to find appreciation. In fact, apartment owners know they have only so many years before they’ll need to sell because the buildings age out. I have a number of friends with apartment buildings and they are way more tied up time-wise than we are.

    A warning we were given when just starting out in real estate was that you shouldn’t get into multi units until you have more cash because everything costs more – more expensive roofs, HVAC, etc. And, one bad tenant can clear out a building — get someone in there dealing drugs or worse, and the other tenants can’t move out fast enough. I took this as an important heads-up from someone with a lot of years in the apartment business.

    I really like what @David Krulac had to add and my experience has been very similar.

    All that being said, there are tons of huge investors (think Donald Trump) who scoff at those of us who mess with single family. I’ve been to plenty of investor meetings where the conversation was that SFR is for beginners.

    So, newbies, buy what interests you, and when you find a great deal learn from it and share your knowledge here!

    Happy Holidays, Ali.

    🙂

    • Ali Boone

      You too Karen and perfect comment! That is really interesting advice to hear, the one you got when you got started. I hadn’t heard that, but I’ll definitely keep it in-tow.

      Yeah, it’s a toss-up, even for the big guys! Donald Trump says no to SFRs, but Warren Buffet said if he were investing he’d buy up all the SFRs. So who to trust? Who knows. (I personally like Warren better, but I also can’t imagine having a gazillion SFRs either).

  6. My experience has been almost identical to David’s. Owned both, can’t stand MF’s though. Constant drain on cash flow due to high maintenance, turnover, turnover costs, etc. The first 4plex I bought had a couple minor plumbing issues that turned into disasters by causing behind wall damage to downstairs units. Most MF’s are built as cheap as possible by builders. Never get calls for the SF’s, tenents stay a long time, and they take care of the property. On paper MF’s often look like they beat SF’s on cash flow, not always the case in real life. So many reasons to invest in SF’s over MF’s. Be prepared when buying a MF to be sold a line of BS by previous owner. Often times cash flow looks great because they haven’t fixed anything in a year or have left out a couple big ticket items, be careful. Remember you are dealing with an investor, and often times they are much more experienced than you.

    • Timothy Trewin

      Ryan,

      Excellent points you made in regards to MFs vs. SFs. I think the last part of what you said goes in line with what Ali says about who buys and sells MFs. This is a huge point to consider and one all new investors (myself included) need to consider before taking the plunge and making that first purchase. Thank you for pointing that out.

    • Ali Boone

      Great info Ryan, and thanks for sharing. You’re right about cash flow on paper. It can always differ in real-life (same argument for cheap properties or low-income area properties). And a really excellent point about buying from another investor!

  7. Nicki B.

    Hello Ali,

    Thank you so much for this article! I sincerely enjoyed reading it; the way you presented the information was clear and concise. Although I’m new to BP, this has been my favorite blog so far. The responses and insights from others has shed light on issues I will definitely consider as well. Thanks to all, and happy holidays.

  8. Jerry W.

    Ali, excellent article. It was informative and fun to read. I also appreciate David Krulac’s input. it was like another article that flowed well with yours. I currently own both and would like to increase my holding’s in both but it is especially hard to buy MFs. In my area it has been my experience that apartments usually have more of the lower income tenants. we do get higher income temporary workers like construction, but overall the higher wage earners in my area buy houses or rent them.

  9. Gary Alford

    I have been thinking more in the mfr direction for me but planned on holding a couple of sfh first. This article and the comments have pointed out a lot of things to think about that I didn’t. Tenant quality plus turnover is a major thing that is kind of now pushing me towards sfr. However, I will probably try both and develop my own opinion and experience but I am thankful for all the input from ali and everyone else.

    • Ali Boone

      Hey Kriss. What market are you looking to buy in? Different markets can give slightly different pros and cons for SFR vs. MFR. A lot depending on pricing. Some markets aren’t lucrative for one or the other.

  10. Patrick Baker

    Thanks, Ali, for the great post and heads-up for us newbies still on the fence about SFR vs MFR.

    I like the exit strategy of selling based on comps and taking advantage of buying in appreciating areas.

    I’m curious, though, for the successful SFR investors out there, where/how do you source the majority of your properties?

    @David Krulac’s comment “It is a form of arbitrage to buy a property based on income, then sell it based on comps and not income” peeks my curiosity. I assume this is related to the “1%” rule (or better) regardless of the sourcing (versus buying MFRs from investors based on income).

    I realize this is a whole separate topic, but for the newbie itching to pull the trigger on a first investment with conventional 30yr mortgage or all cash deals, assuming SFR is the chosen route, where do you suggest we look for SFR deals? (MLS? Find a wholesaler? Low-ball offers on REO?…etc.)

    Thank you guys for helping out the small fish! 🙂

    • Ali Boone

      It totally depends, Patrick, on what kind of property you are wanting to buy and (related) how much time/effort you want to put into it. If you want to fix up a property, a wholesaler or low-balling REOs would be the way to go. The REOs would take a substantially higher level of time/effort though. But both of those routes would be more time-intensive than buying a rent-ready property, for example. MLS can work, but that one depends more on the market. Some markets are so hot that if a property hits the MLS, it’s doubtfully a good deal because it means several investors would have already passed it up. Other markets that aren’t so hopping, MLS could be fine. There are several avenues out there, so it just depends on your goals and your market.

  11. Great article! The classic debate between single family and multifamily investments continues. Like most most things in life, there are pros and cons to every type of real estate investment. I think the best advice, especially for new investors, is to try your hand at both SFRs and MFRs to get a feel for what you like. There is no doubt that, when managed and maintained properly, both types of investments have the potential to yield impressive returns. Depending on your personal preferences, location of your properties, and overall tolerance for risk- you will likely favor either one or the other. The sooner you find your niche, the sooner you will realize great success as a real estate investor!

    • Ali Boone

      I couldn’t agree more Megan! Yep, my thoughts exactly- if you are buying at least two properties instead of one, try one of each and evaluate the performance of both and which you like better and then follow that lead. It’s the best way to do it.

  12. Keith K.

    Good advice, Megan. This has been very confusing for me because I am reading Ben Leybovich (mostly MFR guy) while at the same time reading Mike Butler’s Landlording On Autopilot (he prefers SFRs). They both make compelling cases, but the ‘right’ answer is more something like you and Ali wrote above. Each has its own pluses and minuses and they probably need to be run differently and with a different expectation of results. So, I continue to look at both… why limit your options?!

    • Ali Boone

      Exactly Keith. Maybe try one of each to get started? And yes, everyone on this site (and any investor really) will usually advocate one niche over another. A LOT of it comes down to personal preference. If you can pick a group of investment opportunities that make sense and are smart (both SFRs and MFRs as rentals qualify), thennnn work the personal preference route. Of which it may be different for everyone.

    • Ali Boone

      Me too Daniel! It’s an amazing resource. And I second the great replies from the members. I love writing articles that commenters can add way more value to by inserting their own thoughts. This is definitely one of them! Even I have learned a lot from them.

  13. Peter Crisp

    I wish that I’d read this article two years ago. My wife and I own 4 income properties plus a legal basement suite. One is a house, one is townhouse, one is a 4-plex and one is a 5-plex. I did this deliberately to spread my risk and find out which worked for me. At first, I sweated about the house because of the carrying costs if vacant, but it’s on a good rental area and it’s been continuously rented. It isn’t good for cashflow but it doesn’t bleed cash and it has appreciated nicely. The basement suite is also hassle-free and basically a cash-flow machine. The townhouse is next. The multi-family units have been a right pain. Even with property management companies involved they need a lot of babysitting. This partially because they are low-income properties. On paper, they should cashflow really well but so far I’ve had to pour money than I expected into deferred maintenance, and I thought that I had done my homework. Turnover, deadbeat tenants and slow payment have also been issues. I’m pretty sure that they will work out in the long run, but, like commercial properties, a lot can go wrong and it’s harder to exit from your mistakes. As for financials, I’ve also found work-arounds on the mortgage caps and I’m in Canada so this has not been the issue I expected. I think MFRs can be good but be prepared for a bumpy ride, and it’s hard to find good ones at least in Canada.

  14. Peter Crisp

    Hi Ali I just had a chance to respond but I wanted to think about your question carefully. I think it depends on your goal. My goal is future retirement income so I’m willing to buy, fix and hold. So, I’m not very concerned about exit strategies (unless I find that I don’t get the returns I expect, which is still a potential issue). If you want more flexibility, then I’m thinking that SFR’s are the way to go. Second, I saw some comments on MFRs being only of interest to investors and I think this is true. I don’t know your market(s), but in Canada there seems to be a shortage of good properties at a value that makes sense and that’s for both SFRs and MFRs. That means you either a) build b) pay top dollar and take meagre returns or c) buy a fixer-upper and hope you don’t overshoot on repair costs and/or buy a dog that can’t be turned around. I’m looking at getting to (1) in the next couple of years, but for now a fixer-upper is a way into the market. I’m speculating but I’d say that most MFRs will need work because many investors will starve needed maintenance to puff up returns – and hope someone will buy their problems. I avoided some of that buy buying on a good tip from a property management company and doing a private sale, but I still probably paid a bit too much in hindsight for my first property. So, I’m not saying ‘don’t buy MFRs’ but perhaps ‘keep your wits about you and be prepared to spend more time and money than you expect’. I’m expecting to only break even for the first 3-years on a cashflow basis because I’m pouring money into new roofs, foundation work, removing dead trees (not cheap) and needed suite repairs. This hopefully improves the property value but I don’t see anything in my pocket.

    One other thing – I’m not against flipping and I’ve done some slow flips (buy, fix, hold, sell). But I’m not a contractor and the frictional costs (legal fees, land transfer taxes, etc.) are a barrier for me. Flipping is hard and I think flipping MFRs is harder because investors are all about the ROI. So, if you are into this I’d be sticking to SFRs unless you are doing this as a full-time business. I’m in Canada where the housing market never crashed (yet!) so it’s a different situation than many areas of the USA.

  15. Karan Nanda

    Nice article and the valuable comments.
    Any thoughts on buying a apartment within a building. I am not looking at buying the whole building complex, just 1 unit which is listed on MLS for 18K for 3 bed and 1.5 bath about 1050 Sqft.
    I am looking for this as my first investment and am looking for a buy and hold to use it as a rental property.
    The price point looks attractive to me so I am interested. I am told that it is rented at 750/month and has a condo fee of $210.
    Its a 1971 building so am scared of the condition and repairs needed. Any exit strategies suggested.
    Thanks for helping a newbie.

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