Single Or Multi-Family Rental Property: Which Is A Better Investment?

Many investors struggle to decide where to invest their capital. Rental property can be a valuable investment, especially if you are averse to higher risk investments within the stock market. Recent data indicates that almost half of rentals are owned by individual property owners, which shows just how many people are interested in purchasing a rental property to build wealth. If you are considering your first rental property purchase, one of the first decisions you will have to make is whether to invest in a single or multi-family property. There is no “best way” to invest in rental property, but single and multi-family rental property ownership both have distinct pros and cons.

Investing In Single-Family Rental Properties

Single-family rental investments usually involve buying a condo or house and renting it out to a tenant while building equity. In theory, it makes sense: someone else pays your mortgage, and you eventually own a piece of property that generates income each month. However, the success of your property investment will depend on the location, the rate at which you grow equity, and other factors. General benefits of investing in single income property include:

  • Single-family properties can be a better place for new investors to start and are easier to scale. As one property gains equity, you can buy another and add to your income stream.
  • In general, single-family rental properties will have a smaller down payment and investment of capital.

On the other hand, there are a few disadvantages that you should consider before investing in rental property. Common single-family property disadvantages include:

  • As you scale your investments, you will be dealing with multiple loans and financing options.
  • When you experience a vacancy, you will have no income stream coming in to cover your mortgage, while a multi-family home provides several opportunities to cover expenses.

Investing In Multi-Home Rental Properties

At the other end of the spectrum, investing in a multi-family property involves buying an apartment building or house with several units inside. The benefits of investing in this type of property include:

  • Several different opportunities to generate revenue. When a multi-family home is at full capacity, you could potentially make more revenue than you would from a single-family home.
  • When you purchase a multi-family home, you stand to make more revenue by using a single financing option.
  • Multi-family homes can be easier to manage since all of your revenue streams are located within a single geographic area.

Multi-family homes are not without their disadvantages, however. Whether you invest in Dubai properties or properties within the United States, there are disadvantages to watch out for. There are a few cons of multi-family rental investments:

  • Longevity in tenancy tends to be shorter in multi-family units compared to single-family units. While the nature of multi-family occupancy protects you from non-performing assets, you may be scrambling to fill vacancies more often.
  • Managing several properties within a single building may require more legwork than a single-family property.

The decision to invest in single-family versus multi-family property should depend on the amount you are willing to spend, the rate at which you want to expand, and personal preferences. There are pros and cons to each type of investment, but pairing with a property management company can help you generate consistent revenue for your properties, no matter which avenue you choose.

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