Multi-family vs. Single-family Rental Property Investment

WHAT YOU NEED TO KNOW ABOUT MULTI-FAMILY VS. SINGLE-FAMILY RENTAL PROPERTIES BUT WERE AFRAID TO ASK

For a new real estate investor, the question of whether to buy a Multi-Family Residence (MFR) or a Single Family Residence (SFR) can be a huge question. Like most things in life, there are pros and cons to each and you simply have to decide what your tolerance is for the cons in either case. That said, investing in either an MRF or an SFR is usually a good investment and as long as you have a long-term plan in mind, you can make it work.

Why Invest in a Multi-Family Residence

At first blush, investing in a multi-family residence seems to make the most sense. After all, more units to sell means more money, right? Well, that depends on your long-term goals. If a little extra cash is all you’re after, MFR might be the way to go. On the other hand, it might not turn out to be a great long term investment. That said, here are 4 reasons to invest in an MFR.

Property Cost

While it’s true that the overall cost of an MFR will outstrip an SFR every time, the per unit cost will be far less. Additionally, your cost to maintain that unit and even property manage that unit will be far less on a per unit basis. Consider this. Let’s say you owned 2 SFRs and 1 MFR with 2 units. The MFR enjoys economies of scale for things like repairs and maintenance. If you have replace the plumbing in the MFR, you can do one big job on both units, whereas with the SFRs, you’ll have two completely different plumbing jobs and, more likely, more cost. In addition, if you go the property management route, and you should, having one property to manage will cost less than having two.

Financing

Securing financing for either an MFR or an SFR is what it is. But, what you may not know is that, even with outstanding credit, banks will limit the number of mortgages you can hold—usually to 10. But, if you finance 10 MFRs with 5 units each, that’s 50 units you can call your own. And you can enjoy the cash flow of all those tenants.

Vacancy Expenses

This is a no-brainer. If your SFR remains empty, that means the cost for that is going to come right out of your pocket. On the flip side, if you have an MFR that’s only partially fully, you can offset some, if not all of the cost, even if your units aren’t completely full.

Cash Flow

This has been mentioned before, but it’s worth bringing up separately. Typically with MFRs, you’ll generate a positive cash flow quicker, especially with new units. That said, as MFRs age, and they typically don’t age as well, more of that initial cash flow will be eaten up by maintenance and upkeep costs, so be sure to keep that in mind as you consider where to invest your resources.

Why Invest in a Single-Family Residence

There are lots of good reasons to invest in an SFR instead of an MFR, but again it depends on your long-term goal. If you’re looking to invest in a property and see a greater return on your investment in the long-run, SFRs might be the best option. But keep in mind, owning an SFR is just like owning a home and it comes with all the same issues and upkeep you would expect at your own residence. Here are 5 reasons to invest in SFR.

Location

Typically, an SFR is located in a nicer locale than an MFR. Think apartments vs. homes. That also makes them, in some cases easier to rent. After all, location, location, location still matters in real estate.

Tenant Quality

Most property management companies will tell you that tenants in SFRs are usually more conscientious about their property than tenants in an MFR. That’s usually because they’re looking for a home rather than just a place to live.

Tenant Turnover

Fort Worth property management team Real Property Management says that tenant turnover is the single largest cost for real estate investors. That’s why SFRs are often a better play. Longer tenants means you won’t have to constantly be showing and booking your property.

Appreciation

The Dallas/Ft. Worth area is a booming housing market and for DFW property management, there is ample opportunity to get a good return on your investment. SFRs usually go up in value over time and so the opportunity to make money just by owning a property can be significant.

Exit Strategy

Here is where we talk about long term goals. With an SFR, you should have a goal to sell the house and pocket the investment once the property is paid off. If you handle it correctly, you can have a big payday at the end of your investment which can fund a retirement or other investments.
So, which is right for you? It depends. But, property management in Fort Worth or anywhere else requires time and patience, and usually, a really good partner.

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