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 tough question. Like most things in
life, there are pros and cons to each. You simply have to decide what is best
for you in either case after knowing a few facts.
Investing in real estate, either an MRF or an SFR, is a good investment. As
long as you have a long-term plan in mind, you can make it successful.
Why Invest in a Multi-Family Residence? 4 Reasons to Consider....
At first
glance, investing in a multi-family residence seems to bring the most cash
flow. After all, more units to rent means more money, right? Well, that depends
on your long-term goals. Here are 4 reasons consider investing 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. 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 need to 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 that will mean higher cost. In
addition, your state may require an onsite employee if the MFR is over a
certain number of units.
Financing
The main
difference you may not know about property financing is that even with best
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 unit is
going to come right out of your pocket. On the flip side, if you have an MFR
that’s only partially rented, you can offset some, if not all of the cost with
the rent of the other units that are leased.
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...5 Things to Consider
So with all of
the above reasons, why would someone consider investing in an SFR instead of an
MFR. 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. Here are 5
reasons to consider a SFR.
Location
Typically, an
SFR is located in a nicer locale than an MFR. Consider a quiet neighborhood and
its typical location compared to where apartments are located. Good property
locations can make a unit 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. Tenants
that choose a SFR can have more long term residential goals.
Tenant Turnover
Phoenix property
management team RPMWV Phx says that tenant turnover is the
single largest cost for real estate investors. That’s why SFRs are often a
better play. Longer renting tenants means you won’t have to constantly
advertise, show, and re-lease your property.
Appreciation
The Phoenix area is a booming housing market and
for Phoenix 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 or go for a 1031
exchange. 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? That depends on your personal goals and situation. Rental
property investing requires time and patience, and with a really good partner
like RPMWV Phx you can be successful.
RPMWV Phx offers tenant & full service property management throughout the Phoenix metro area. Call today for information on local specials. 623-748-7800
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