Multi-Family Rental Investing vs. Single-Family Rental Investing

For a new real estate investor, the question of whether to buy a Multi-Family Residence (MFR) or a Single Family Residence (SFR) can be a huge question. Like most things in life, there are pros and cons to each, and you simply have to decide what your tolerance is for the cons in either case. At Specialized Property Management Dallas, we are the Dallas property management company known as the local leader in single-family residential management. Single-family homes comprise 70% of the properties we manage. While we excel in Single-Family Rental Investing, we also have extensive experience in Multi-Family Rental Investing.

We think that choosing to invest in either an MRF or an SFR is usually a smart move as long as you have a long-term plan in mind. Here are some of the advantages and disadvantages to both.

Why Invest in a Multi-Family Residence (MFR)

We’re talking duplexes, apartment buildings, quadruplexes, and townhomes here. At first blush, investing in a multi-family residence seems to make the most sense. After all, more units to sell means more money, right? That depends on your long-term goals. If a little extra cash is all you’re after, MFR might be the way to go. On the other hand, it might not turn out to be a great long term investment. That said, here are four reasons to invest in an MFR.

Property Cost

While it’s true that the overall cost of an MFR will outstrip an SFR every time, the per-unit cost will be far less. Additionally, your cost to maintain that unit and even manage the unit will be far less on a per-unit basis. Consider this. Let’s say you owned 2 SFRs and 1 MFR with 2 units. The MFR enjoys economies of scale for things like repairs and maintenance. If you have to replace the plumbing in the MFR, you can do one big job on both units, whereas with the SFRs, you’ll have two completely different plumbing jobs and, more likely, more cost. In addition, if you go the property management route, and you should, having one property to manage will cost less than having two.

Financing

As a leading Dallas property management company, at SPM Dallas we understand that securing financing for either an MFR or an SFR is what it is. But, what you may not know is that, even with outstanding credit, banks will limit the number of mortgages you can hold—usually to 10. But, if you finance 10 MFRs with 5 units each, that’s 50 units you can call your own. And you can enjoy the cash flow of all those tenants. 

Vacancy Expenses

This is a no-brainer. If your SFR remains empty, that means the cost for that is going to come right out of your pocket. On the flip side, if you have an MFR that’s only partially full, you can offset some, if not all of the cost, even if your units aren’t completely full.

Cash Flow

This has been mentioned before, but it’s worth bringing up separately. Typically with MFRs, you’ll generate a positive cash flow quicker, especially with new units. That said, as MFRs age, and they typically don’t age as well, more of that initial cash flow will be eaten up by maintenance and upkeep costs, so be sure to keep that in mind as you consider where to invest your resources.

Why Invest in a Single-Family Residence

Before the housing crisis took place ten years ago, there weren’t many single-family rental properties on the market. Today, however, there are almost double the number of single-family homes for lease around the nation. According to statistics from the National Multifamily Housing Council, 43% of renters live in a single-family home. That’s almost half of all renters! There are lots of good reasons to invest in an SFR instead of an MFR, but again it depends on your long-term goals. If you’re looking to invest in a property and see a greater return on your investment in the long-run, SFRs might be the best option. But keep in mind, owning an SFR is just like owning a home and it comes with all the same issues and upkeep you would expect at your own residence. At SPM, we are the Dallas property management company that wants you to fully understand what benefits you’ll reap when you invest in SFR. Here are a few reasons why we think it’s a great idea.

Nicer Location

Typically, an SFR is located in a nicer locale than a MFR. Think apartments vs. homes. Homes tend to be in quieter neighborhoods and set farther apart from major highways and areas of high traffic. That also makes them, in some cases easier to rent. After all, location, location, location still matters in real estate.

Higher Tenant Quality

Most property management companies will tell you that tenants in SFRs are usually more conscientious about their property than tenants in an MFR. That’s usually because they’re looking for a home rather than just a place to live. If your tenants plan on staying in the rental home for a few years, they are more likely to treat the home as if they were the owners. Also, there’s a good chance they will inform you faster if a problem arises because they know they’ll be in the home a longer amount of time.

Less Tenant Turnover

Tenant turnover is the single largest cost for real estate investors. That’s why SFRs are often a better play. Longer tenants mean you won’t have to constantly be showing and booking your property. Most tenants who rent a single-family home intend to stay for at least a year, if not longer. This reduces your tenant turnover and helps you form a relationship with the tenants. Things like maintenance issues and neighbor-neighbor tension are less of a problem with a more reliable tenant.

SFRs Appreciate Over Time

Our Dallas property management company recognizes that the Dallas/Ft. Worth area is a booming housing market, which means there is ample opportunity to get a good return on your investment. SFRs usually go up in value over time and so the opportunity to make money just by owning a property can be significant. You can also typically charge more for rent annually on single-family homes because of the land that comes with it, the upgrades and the privacy of the home. 

You Can Offer Tenants More Freedom and Mobility

More families are renting instead of buying because they want to live in a single-family home, but they like the freedom and mobility of renting. Leasing a single-family home gives tenants that flexibility they want, a yard, a garage, and ample space to live and raise their children. Demand for single-family rentals is only raising in today’s economy, so it’s a good time to be on the supply side of housing.

Less Outside Maintenance

If you own a Multi-Family Residence, you will probably be expected to care for the lawn and all outside common areas around the building. Not true with a single-family home. You can offer this service if you wish, but you can also choose to outline in the leasing agreement who is responsible for lawn care and maintenance: you or the tenant. Most tenants go into an SFR knowing that they are expected to mow the lawn and make sure the outside of the house looks presentable. 

Exit Strategy

Here is where we talk about long term goals. With an SFR, you should have a goal to sell the house and pocket the investment once the property is paid off. If you handle it correctly, you can have a big payday at the end of your investment which can fund retirement or other investments. Single-family homes are more often easier to sell than multi-family residences, which is another great reason to invest in this type of property. 

Why Choose SPM Dallas: The Leading Dallas Property Management Company

At SPM Dallas, our tools and management strategy for single-family homes make owning an investment property easier than ever. Whether you choose to invest in a Multi-Family Residence or feel more comfortable with Single-Family Rental Investing, our team of professionals is ready and willing to help you succeed.

Other companies may use old and outdated multi-family business models that simply don’t work for the single-family tenant, but at Specialized Property Management Dallas we offer a technology-driven process designed to efficiently and carefully manage single-family properties. With over 70% of Specialized’s nationwide portfolio as single-family homes, we are proud to be an expert on this type of Dallas rental property management.

Investing in real estate has never been easier. When you choose us as your Dallas property management company, we promise to provide you with clarity, ease of access, and unwavering commitment to excellence. We’ll help you discover just how easy it is to maximize your profits and minimize your hassles with our comprehensive property management services.

Contact your Specialized Property Management Dallas team today at: 214-233-7572!