Single family rental vs multi-family investing. What is better?
One of the most common questions I get is: “Which is better, single-family rentals or multi-family rentals?” To me, this is like asking which is better between soccer and basketball - it depends on your preferences and circumstances.
The information is widely available on the net and I’m trying to cover stuff that’s not super easy to find, but I get it - sometimes the info is basic - so I wanted to jot down my own experience to help you decide quickly.
First off, let’s align on the definition.
Single-family Rentals(SFH or SFR) are standalone residential dwellings for one family. They offer more space, privacy, and control over the living environment. Popular for families and people who want these benefits.
Multi-family(MF) homes are buildings with multiple dwelling units designed for separate families or individuals. They can range from duplexes to large apartment buildings with hundreds of units.
Multi-family buildings (MF) get labeled as residential if they got fewer than five units. But if they’re packin’ more than five units, they get the commercial label. This is a big deal because it affects what kind of rules apply to the place, as well as what kind of insurance, utilities, and upkeep it needs. Plus, whether a building is residential or commercial has a big impact on its financing options.
Now let’s jump right into my experience - here are some thoughts and strong opinions in no particular order.
I’ve had a bunch of SFRs, duplexes, triplexes, and commercial multifamilies, and for me, it was always a toss-up.
I invest in tertiary markets( think 4th or 5th largest cities in a state), and my experience is that the multifamilies are way more work, and I get the same or less cash flow as SFRs.
I get a better growth rate meaning I could increase my cash flow faster with the multis, but better return per unit and less work with SFRs, mostly because tenants tend to stay longer in the singles, which fits my life goals better.
MF tenants turnover every 1 year on average, leaving their apartments in bad conditions.
And I’ve had the same tenants in the single families or my duplexes this whole time. They are chill, and I rarely hear from the tenants. They pay on time, and I get a decent 7 or 8% cash on cash return.
In my experience, I’ve found that single-family homes tend to attract better tenants. Of course, everyone has their own idea of what makes a great tenant, but for me, it’s someone who stays for a long time, pays their rent on time every month, and doesn’t require frequent communication. On the other hand, I’ve noticed that multi-unit properties tend to have a higher turnover rate and attract tenants who may need more frequent attention.
Honestly, if I weren’t looking to grow as fast, I’d eliminate all the multifamilies and just work on setting up a system (or what I like to call an assembly line) for SFRs. With this system, I could snag one or two SFRs monthly for 4-5 years and have a solid 125 SFRs in 5 years.
That is enough for me to live a good life!
SFRs are easy to get into, and the stakes are low if you mess it up. On the other hand, it’s a dog-eat-dog world in the multifamily game, and you’d have to do a ton of schmoozing with brokers, wholesalers, property managers, and whatnot just to get on their radar as a possible buyer.
Appliances always seem to be breaking. There is always something that has to be fixed or a vacancy to be filled, and while damages are always most likely the tenants’ fault, it’s often hard to prove that they were responsible, so I have to incur costs myself.
SF tenants maintain the property themselves, and I don’t have to get someone to clean common areas like in multi-families.
I like that SFRS can be sold to both investors and owner-occupants. Gives me two exit strategies. In theory, it makes it easier to sell or liquidate.
This is the main reason I like SFH’s - which is liquidity. When you are selling a multi-unit, I will venture to guess that 99% of potential buyers are investors. With an SFH I can sell both to the home buyer and to investors…I have a much larger number of potential buyers.
In MFs, a nuanced factor is that tenants share the walls = more drama. It happens more than you know.
Now I don’t buy for appreciation. My opinion of people who buy for speculative growth is fairly low. Cash flow is what matters. But data shows SFRs also have high appreciation. This is area dependent and may differ in your area, so do your own research.
All that said, I still predominantly buy multi-families because the strategy is aligned well with my strengths, goals, and values at the moment.
Multifamily investing is about economies of scale, and to me, the biggest economy is the economy of time. I can most likely buy a 20-30 unit in the same time it takes me to buy 2-3 single families.
I want to buy as many units as quickly as possible because I have access to capital. And at the end of the day, I could care less how many times the places turn over as long as the numbers make sense because I have a star downstream management team(shout out to Chris! 🙌🏼) - which shields me from the aspects of multi-families I don’t like.
But where I’m at right now with time, money, resources, and my short-term goals, and given the crazy macro climate we’re in, I’d chase any deal that makes sense on paper and forgets about that whole “I only buy duplexes or multis” idea. It’s just not practical if I want to grow at the rate I’m aiming for.
If you are new, my advice is to try both SFH and multi-unit early on in your career as an investor. I know other investors who absolutely LOVE single families and small multi-unit and would never progress to multis. But if you do not like the SFRs as much and want to grow as fast as I want to and have the right strategy and team in place, multi’s is where most end up.
Hope this helps!