Investors–Should you Buy Single Family or Multi Family Properties?


Investors - Should you Buy Single Family or Multi Family Properties? by Sandy Shores Broker Associate

Properties in Brevard County are moving quickly off the market. Some statistics indicate that 40% of buyers under $125000 are investors, and 60% of them are new investors. Over 50% of our buyers are currently paying cash and we are again seeing multiple offers on property that come on the market for sale.

Many new investors ask what type of property they should buy…single family or multi family. There are pros and cons to each type.

In my experience, my preference is investing in single family properties. They are often easier to buy, finance, sell, rent, own and manage than multi family units.

Single family units typically:

(the following comparison is single family vs. small 4-10 unit multi family complexes)

>are easier and cheaper to buy than multi family.

>are tyically easier to get financed than multi family properties. There are guidelines in buying investment property. A lender typcially requires 30% down to buy a single family investment property. Often times owner financing or creative financing is helpful.

>require less money down, because they are often cheaper than multi family.

>are easier to rent (provided they are affordable) as some prospective tenants don’t want to live in a multi family district.

>are easier to sell and they sell quicker. Often because there is a larger pool of buyers for single family units. Investors or owner occupants may be interested a property. A multi family property is usually restricted to investor buyers.

>rents are usually higher than in multi family units (for the same square footage). Often in multi family there is price fixing. A tenant that has been renting from you for several years may be paying less rent than today’s market rent. Thus, you must be cautious in the amount of rent you charge for new tenants. People shop around for the best deal. If your price is higher than others of the same size they will go elsewhere. Or, if they do rent, at a higher rent than you do, they will be talking to your old tenants. Or vice versa, as pointed out in the example below.

>appreciate more quickly than multi family units. Often, this is due to the fact that the small multi family units are located in high rental areas with other such properties surrounding them. Often times rents can become somewhat fixed, because you can only rent for what the market will bear within the building or within the range of what other tenants in the building are paying. Therefore, the value of the multi family is typically based on the amount of the current rents on the building. in looking at single family, the houses are not as similar as in an apartment building, so variations can justify different rents.

Multi family units can be more difficult to manage than single family units because multiple tenants of yours are living in close proximity to each other. This could cause problems:

>As previously mentioned your tenants will talk to each other.

>If you have one disgruntled tenant. they can wreak havoc with your other tenants.

>If one difficult tenant is breaking your rules, their bad habits can spill over to your other tenants. Often, they become friends. And, if one bad apple doesn’t like the landlord, he can cause your other tenants to fill the same.

>Or, you may find your tenants calling you regularly to report a difficult tenant. It can turn into a nightmare!

For me, I don’t care to have my tenants living close to each other, because it can get very complicated. If you’ve had a tenant with you for 5 years and you have been increasing rent each year by $25, this tenant may now be paying $750 per month. What if the rental market has dropped? And, there are a large number of vacancies, so you offer an empty unit in your multi family complex, same size same square footage to a new tenant for $650, because that’s all the market will bear? What happens when the new tenant moves in and becomes friends with your $750 tenant and they talk about how much rent they’re paying? Guess what, your phone is going to be ringing, asking why you are overcharging your old tenant. It can get sticky.

Often, it can be tedious and very difficult to get a multi family building financed. Some lenders don’t have programs available to be able to finance a multi family properties. So, private financing or owner financing may be a necessity.

In my opinion small multi family units require micro managing. They are often more difficult to manage in that often they are lower priced rentals, in lower income areas. Thus, it becomes more difficult to collect rents. Sometimes tenants must be put on payment plans, and you’re soon collecting rents bimonthly, or every week, as that’s the only way the tenant can afford to pay. That means the landlord is at the property weekly. Then, it can become a situation where you’re hearing the drama of everything going on or everything that is wrong on a regular basis. I’ve seen several landlords in this very situation.

Often the cash flow is more than in single family units. But, often the risk is higher. And, often the vacancy rates and eviction rates are higher. I prefer to take my money and divide it between multiple single family units, located away from each other.

Let me twist this a different way though: if you have only one single family rental and it is empty, then you have 100% vacancy. But, if you have a multi unit complex, and 1 unit out of 4 is empty you only have a 25% vacancy. That’s why I own multiple single family units.

I buy, sell, rent, own and manage single family rental houses. And, I prefer them to small 4-10 unit multi family comlexes.

I do not currently invest in condos or townhouses. There are associations that govern them, that can become a bit challenging to deal with. And, your cash flow is lessened by the association fee you pay each month.

NOTE: Please note that this post has been written based on my experiences and opinions in investing in Brevard County real estate. The information may vary depending on the part of the country you are in and the current market conditions.

And so, the choice is yours… will it be single family or multi family?

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Melbourne FL Real Estate, Sandy Shores, Realtor

Sandy Shores, Broker Associate, Brevard County FL Real Estate

Sandy Shores, Melbourne FL Broker-Associate

M & M Real Estate, Inc.

Residential, Investment and Relocations

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Melbourne Real Estate / Palm Bay Real Estate

321-253-4545 or 321-733-6080

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