Multifamily Minute Reader Reflections: Multifamily vs. Single Family
I asked our readers which types of investments they prefer between multifamily and single-family rentals, and here's what they said.
In the most recent issue of the Multifamily Minute, my question to you was: multifamily or single family? Where are you investing the most?
I'd expected most of the responses to be slanted toward multifamily — the newsletter is called the Multifamily Minute, after all — that's not exactly how it went.
Let's take a look at the results, and unpack the key differences between these two investment types.
Survey Results
Response | Percent of respondents |
|---|---|
Exclusively multifamily | 12% |
Mostly multifamily, some single family | 30% |
Even split | 10% |
Mostly single family, some multifamily | 38% |
Exclusively single family | 6% |
Neither | 4% |
The one thing that stands out is that most of our readers are pretty diversified. That makes great sense; as much as I tout multifamily for its upsides, there are some drawbacks too, and being involved in single-family rentals (and any kind of commercial real estate) can drastically reduce your investment risk.
I've written extensively about the advantages and disadvantages of both asset types, but to give a condensed overview:
Multifamily Pros and Cons
Economies of scale plays a big part in choosing to invest in multifamily. Whether you're buying a 10-unit property or a 100-unit building, it's easier to take care of your residents, your real estate, and your returns when it's concentrated, compared to looking after 10 or 100 different houses in different locations.
There are also loads of incredibly advantageous financing options for multifamily that simple aren't available for single-family rentals. Fannie, Freddie, and HUD's wide range of multifamily loans are simply hard to beat.
While many of these loans are only available for properties with five or more units, Fannie Mae made a major update last year. They now offer loans at up to a 95% loan-to-value ratio for buying or refinancing a two- to four-unit property — provided you live in one of the units. That's a fantastic way for a first-time investor to get started.
Downsides, though? Multifamily can be expensive. And it's also more complicated to manage. Yes, like I said above, you do benefit from economies of scale — and finding a good property manager can take a lot of the complexity out — but running a building with 10 units is still no easy task.
Single Family Pros and Cons
Single-family investments are great for a lot of reasons. First, the lower costs of entry are compelling, especially if you're new to the investment game. There are also far fewer regulatory hurdles, meaning fewer headaches.
But, naturally, there are drawbacks. The big one is vacancy risk. If you have a 10-unit apartment complex and one unit goes empty, you're still getting around 90% of your rental revenue. If your single-family tenant vacates, though? Now you're operating at a loss until you get a new resident in there.
Subscribe to the Multifamily Minute
I don't talk a ton about single-family investing in the Multifamily Minute, for fairly obvious reasons. So, if you're looking for the Single-Family Second (cool name; I should use it), don't subscribe.
But if you're seeking the latest multifamily insights and updates in a quick-to-read, digestible format, throw your email address into the form below.
Our Previous Survey
The last survey we ran was focused on the benefits multifamily has — not for us as investors, but for the communities where we invest.
What was top of mind for a majority of our investors was how multifamily of all types — luxury, affordable, and everything in between — is essential to creating more affordable housing where it's most needed.