Invest Now Capital

Multi-family vs Single-Family

Most real estate pros start their investing career by buying a single-family home, like a house or condo, and renting it out. This makes sense. Most of us are used to these types of properties, so they’re a pretty straightforward investment.

Multi-family properties are an entirely different ball game. Only a few of us have actually bought an entire apartment building, so moving into the multi-family space — especially to start — is intimidating for most investors.

It shouldn’t be.

Let’s compare multi-family vs single-family homes and determine once and for all which investment is better.

Spoiler alert: it’s multi-family.

Multi-Family vs Single-Family: What’s the Difference?

The main difference between single-family and multi-family homes is their number of units. Single-family units are, you guessed it, homes for one tenant or family of tenants. Multi-family units have more than one dwelling. These can be anything from duplexes to whole apartment buildings.

Here’s how each sizes up when it comes to:

  • Rental income
  • Financing
  • Appreciation
  • Scalability
  • Economies of Scale

Rental Income

Which would you prefer: rental income from one tenant paying $1,000/mo or income from ten tenants each paying $1,000/mo? The more tenants you have, the more income streams you’ll enjoy.

OR let’s think about this another way. Let’s assume that your gross monthly cash flow, operating expenses, and net operating income are the same for both your single-family unit and your 10 multi-family units:

Single-Family

Gross Monthly Cash Flow

(Including rent and additional income, like parking, etc.)

$1,000

Operating Expenses

(Your mortgage payment, property taxes, insurance, reserves budgets, etc.)

$800

Net Operating Income (NOI)

(Gross monthly cash flow – operating expenses)

$200

 

Multi-Family

Gross Monthly Cash Flow

(Including rent and additional income, like parking, etc.)

$10,000

Operating Expenses

(Your mortgage payment, property taxes, insurance, reserves budgets, etc.)

$8,000

Net Operating Income (NOI)

(Gross monthly cash flow – operating expenses)

$2,000

 

Now let’s assume that each loses a tenant for one month:

Single-Family

Gross Monthly Cash Flow

(Including rent and additional income, like parking, etc.)

$0

Operating Expenses

(Your mortgage payment, property taxes, insurance, reserves budgets, etc.)

$800

Net Operating Income (NOI)

(Gross monthly cash flow – operating expenses)

-$800

 

Multi-Family

Gross Monthly Cash Flow

(Including rent and additional income, like parking, etc.)

$9,000

Operating Expenses

(Your mortgage payment, property taxes, insurance, reserves budgets, etc.)

$8,000

Net Operating Income (NOI)

(Gross monthly cash flow – operating expenses)

$1,000

When you lose your only tenant in your single-family unit, you lose money (or use up your reserves) until you replace that tenant. However, if you lose one tenant in a multi-family property, you’re still earning rental income from the other nine and still turning a profit.

Financing

Initially, single-family units are easier to finance  because they cost less than their multi-family counterparts. It’s much easier to invest $25,000 in a single property than it is to invest $250,000 in a ten-unit complex.

However, it’s also much easier to finance $250,000 in one ten-unit complex than it is to finance ten single-unit properties costing $25,000 each. Also, instead of worrying about ten different loans and ten different insurance policies for your single-family units with multi-family properties, you can combine them all into a single loan and blanket policy.

Appreciation

Accruing appreciation is an added benefit of owning real estate in hot rental markets. When it comes to both natural and forced appreciation, more is better.

Natural appreciation is when real estate increases in value over time. If your $100,000 single-family unit and your $1,000,000 multi-family unit appreciation by 2% in a year, your single-family unit’s value will increase by $2,000, but your multi-family unit will rise by $20,000.

Forced appreciation works similarly. When you’re decreasing expenses and increasing rents for a single unit, you’re growing your bottom line. If you do the same for your ten-unit property and your lowered expenses and increased rents are comparable, you’re increasing your bottom line tenfold.

Scalability

If you’re looking for rapid portfolio growth, multi-family investing is your best friend. Instead of adding one unit at a time with a single-family strategy, you can acquire multiple units at once. Multi-family investing lets you fast-track your growth by providing you with more operating income and equity to play with, allowing you to buy more properties sooner! Instead of adding one unit at a time with a single-family strategy, you can acquire multiple units at once.

Economies of Scale

Economies of scale refer to the cost advantages you’ll gain as an investor when production becomes more efficient. Simply put, you’ll save more per unit when you have more units. It’s sort of like the difference between retail and wholesale.

When acquiring whole apartment buildings, you’ll get better deals per unit on property managers, cleaners, general contractors, etc., than you would if you had the same number of single-unit properties spread across town.

Are you ready to enjoy all the awesome benefits of being a multi-family property owner? Better yet — do you want to enjoy these benefits without the headaches of being a landlord? Let’s create a strategy that works for you!