Multi-family vs. Single-family Rental Property Investment
WHAT YOU NEED TO KNOW ABOUT MULTI-FAMILY VS. SINGLE-FAMILY RENTAL PROPERTIES
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 decision. There are definitely pros and cons to each, as with most decisions in life. You simply have to decide what is best for you in either case. Knowing a few facts, listed here can help you when trying to weigh the pros and cons for each. Investing in real estate, either an MFR or an SFR, is a good investment and as long as you have a long-term plan in mind, you can make it successful.
Why Invest in a Multi-Family Residence
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.
While it’s true that the overall cost of an MFR will be more than an SFR, the per unit cost will be far less. Additionally, your cost to maintain that unit and even 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
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.
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. But keep in mind that 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
So, with all 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.
Typically, an SFR is 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 matters in real estate whether purchasing or renting a home.
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 usually have more long term residential goals.
RPM Alamo, the property management team of Real Property Management in San Antonio can attest 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-rent your property.
The San Antonio area is a booming housing market and for San Antonio property management, there is ample opportunity to get a good return on your investment. SFRs usually go up in value over time, so the opportunity to make money just by owning a property can be significant.
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 good partner like RPM Alamo you can be successful. If you are interested in more info on the costs of property management please contact our office in San Antonio. We would love to talk to you about any questions you may have in order to ease your concerns about your investment property whether SFR or MFR, we handle it all. Call 210-787-3876 or email: [email protected].
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