Where to Put Your Money: Single-Family Homes or Apartment Complexes

Some things to think about when deciding between a single-family home and a multifamily building. There are good and bad aspects to both. But think about what you need specifically before making a choice. Depending on your needs as a renter, a single-family home may be the best choice. On the other hand, multifamily dwellings could be a better fit for you as an investment.

Investors have shown a growing interest in single-family rental homes after the 2008 financial crisis. Since this is the case, these businesses are expanding, focusing on middle-class consumers and rapidly developing areas. In addition, they have shifted their attention to real estate development and acquisition.

Choosing a suitable multifamily building can be challenging. Zoning regulations may constrain the supply, and the level of competition may be high. Moreover, multifamily homes are more difficult to sell and carry a higher risk of late vacancies and rent payments. The upkeep and management of a multi-unit building are equally time-consuming. The tenants are also your responsibility.

A multifamily building is an excellent choice to amass a sizable rental property portfolio. The original outlay may be more significant than that of a single-family home, but the rental income will compensate. In addition, purchasing a multifamily building is a great way to diversify your holdings and lower your overall portfolio risk.

It is imperative that you, as an investor, investigate your lending options. Getting mortgage pre-approval is a significant first step. Next, inquire about the lender's track record of financing multifamily projects. Location is also an essential factor to think about. The location of your properties will be the determining factor in how quickly they rent out. Generally speaking, rents are higher in areas where vacancies are scarce.

Rental prices in multifamily buildings typically reflect the increased property taxes levied on such buildings. Therefore, the landlord of a single-family property may be responsible for covering these expenses out of their pocket during periods of high vacancy. However, the long-term financial benefits of multifamily dwellings are more substantial. Although the appreciation rate may be lower than that of single-family rental homes, the rents are typically increased annually, ensuring a healthy return for the owner.

Rental income from many units can contribute to the monthly payment on a mortgage and cover other operating expenses. However, single-family residences don't bring in as much money as multifamily dwellings because they only collect one monthly payment. Investors with large families may also come out on the losing end of the rental revenue equation compared to those who purchase multifamily dwellings.

Purchasing a property that can be divided into apartments is an excellent financial move. Rental revenue from these properties might cover as much as 70% of your monthly costs. Moreover, investors just starting in the market would do well to choose multifamily dwellings. Finally, investing in more units is an excellent way to leverage your growing expertise.

The tax benefits of renting a single-family house are unavailable to investors who purchase multifamily dwellings. In addition, these loans often have higher interest rates than those offered to first-time homeowners and call for a down payment of 20% or more. Landlords of such properties also need to run a management firm to keep the buildings in good shape, meet the needs of their tenants, and turn a profit.