There are several investors who believe that investing in multifamily housing units is more profitable than investing in single family units. However buying and selling single family units are just as profitable. Yes, it depends on the way you invest.
In this article, we will explain why it is profitable to invest in single family homes versus multifamily homes.
High return on investments
In certain areas the return on multifamily homes is lower, whereas the rental return on single family units is higher.
When it comes to multifamily units, the economy of scale is large. When you buy a large number of units by paying a large amount, the cost per unit is relatively low. While this is a plus point, a multi-family unit requires more maintenance and have higher turnover.
In some areas, more single family units are available. If you are an investor, your goal should be buying homes below their market value. So, you should look for short sales, estate sales or homes that need work.
When few multifamily units are available on the market, you will probably not be able to find a great deal. The value of multifamily units depends on the income they generate. The owner can increase the value of the property by increasing the rent or by adding units. However, this is not always possible because rents are almost always determined by market conditions. Also increasing the rent is not easy when you have good tenants who pay on time.
How to find best deals in single family housing
Look for homes that need some repairs. If a property needs extensive repair, the owner will have to sell the property at a discounted price. This is a great opportunity for an investor. By spending $10,000 or $20,000 in repairs, the investor can easily gain equity worth $30,000 or more. By doing some research, the investor can also find homes that are underpriced.
You will need a huge amount of money to purchase a multifamily unit. This might involve waiting longer to save enough money. On the other hand, single family units are relatively less expensive to purchase. This allows you to invest more often.
Single family units appreciate more
The chances of price appreciation are high in the case of single family units. The value of multifamily homes is determined by rental income. However, the value of single family units is determined by the logics of demand and supply. If the demand exceeds the supply, the value of these units will increase.
In addition, getting finance to purchase single family units is relatively easier. On the other hand, if you are planning to purchase a multifamily unit, you will probably have to get a jumbo loan which also requires a large down payment.
Managing single family homes is easier
Mid-range rental homes tend to have stable tenants. If you are an investor, you will probably want to keep the house for one or two years before selling it for a higher price. In this case, having stable tenants will help you earn a regular income until you sell the property. Tenants occupying single family homes also tend to take proper care of the property.