Single-Family Versus Multi-Family Investing
The world of real estate investing is one of the most varied asset classes that any investor can participate in. When many investors, especially those who are relatively new to the world of real estate investments, think about real estate investing, their minds automatically go toward the fix-and-flip model that has been made so popular on TV shows in recent years. While that is certainly one viable option, it’s far from being the only option that investors have. One of the most important choices that you can make as a real estate investor is choosing between single-family housing and multifamily housing. Understanding what each option entails and the benefits of each can ensure that you’re making an informed decision.
Single-family housing is exactly what it sounds like: a home that is designed for one family to live in. Obviously, single-family housing can also be occupied by a single person or two or more roommates, but the concept of single-family housing is found in the fact that it’s a standalone piece of property. There are some pros and cons associated with this investment class that you’ll certainly want to think about when weighing out your options.
Perhaps the biggest benefit of single-family investing is found in the options that you have as an investor. Obviously, the option that you choose is largely contingent on your personal financial goals and investment strategy, but there are certainly options out there for single-family investors. If long-term passive income is the goal of your investment, you can rent out a single-family home. Depending on the location of the property, the potential for long-term rental income is very appealing for many investors. It’s also easier to liquidate single-family homes if you decide that you’re ready to move on from one investment to the next.
The primary disadvantage is found in the fact that the single-family housing market is usually more competitive. If you decide to sell the property (ideally for a profit), you will be in competition with everyone else who is selling a home in the area.
Multifamily real estate is a much more varied term, as it can include anything from a duplex to a large apartment complex. With such a wide variety of investment options, it’s certainly no wonder that many investors prefer the diversity associated with multifamily real estate investing.
Depending on the location and type of multifamily housing that you choose to invest in, you can put yourself in a great position to generate significant amounts of passive income over the long-term. For instance, if you invest in a large apartment complex that is close to a college campus, you may open yourself up to the possibility of renting to a large number of students who don’t want to live on campus. Similarly, if you own a duplex in a community where many young couples live, you may be able to tap into that market, as they look for a place to rent while they start their lives together without the hassle of being responsible for property maintenance.
Ultimately, the biggest benefit of multifamily housing is found in the fact that it’s a more secure option than single-family housing. If you own a single-family home and the tenant leaves, you’re left without an income source until you find a new tenant. If you own an apartment complex with 20 units, and a tenant leaves, you still have 19 other income streams.
As is the case with all investment classes, there are also some drawbacks that you’ll need to consider before committing to one option over another. If the ease of liquidity is a benefit of single-family housing, the difficulty of liquidating multifamily housing is its primary downside. If you decide that you’re ready to move on from your investment, you will need to find an investor to purchase the property, as most buyers in the market aren’t looking to purchase investment properties. The fact that not every buyer is an investor means that you’ll be looking at a smaller pool of potential buyers should you decide to liquidate.
Real estate investing has long been considered one of the smartest investment choices you can make, as most of the world’s millionaires have real estate somewhere in their portfolio. Making an informed decision when choosing between single-family and multifamily real estate can ensure that you’re putting yourself in the best position to increase your own net worth while also building generational wealth through real estate investing.