A constant debate that I see here on the BiggerPockets Forums is whether a new investor should buy a single family home or a multifamily home as an investment. I can unequivocally say that from my experience, single family homes perform much better than small multifamily, especially for a new investor. There are 5 reasons why I think this.
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5 Reasons Single Family Homes Beat Multifamily Properties, Hands Down
Reason #1: Expenses
Contrary to conventional beliefs, across our whole portfolio, single family homes have lower expenses per unit than multifamily. There are a lot of expenses that we do not have on single family homes that we have on multifamily homes.
- Single family homes have no common space to clean. They have no common utilities.
- Tenants take care of landscaping and snow removal on single family homes.
- Pest control is the responsibility of the tenant in a single family home.
All these added expenses make a big difference when we compare the two.
Reason #2: Vacancy
Our experience has been that tenants stay longer in single family homes than they do in multifamily. Single family homes also rent more quickly than multifamily. This means:
- Fewer repairs after someone moves out.
- Fewer leasing fees.
- Fewer days actually sitting vacant.
Once a tenant is in the house, they make it like their home, and they aren’t going to leave it to move into an apartment. But a tenant in an apartment is always willing to move out to get into a single family home.
Reason #3: Tenant Interaction
This may not seem like a big deal, but it can be. In a single family home, you don’t have to worry about the tenants getting along. We had a 3-unit property just a few months ago where the tenants hated each other. Over the course of 3 months, they called the cops on each other over 20 times. The police contacted us and said that one of the tenants needed to move or the police were going to start fining us for every time they came out.
Reason #4: Pride of Ownership
Our tenants love the fact that they have a home. It may not be theirs, but they treat it as their own. They keep it clean. They care for the yard. They love their home. It is quite possible that this is the nicest home they have ever lived in, and they treat it that way. Of course, we have some who don’t, but by far and large the people that treat the property poorly live in a multifamily.
Reason #5: Sale of the Property
The best thing about a single family home is that it appeals to the largest amount of buyers. Apart from retail home buyers, investors would be interested in the property as well. You can sell the property for a much higher price than what the cash flows might predict to the interested retail home buyers. With retail buyers, there is an emotional component to their purchase. With multifamilies, it is more difficult to find someone who wants to live with their tenants. So, the pool of buyers is drastically reduced on the retail side.
On a pure number basis, I have found that single family homes outperform multifamily properties. So as a new investor, you’ll have fewer headaches with a single family home and more profit.
Where do you like to invest: single family or multifamily–and why?
Let me know with a comment!