Ask Property Management: Multi-Family vs. Single-Family

Property management professionals make Smart Investment Choices

Real estate ownership in and around Natick can be a great moneymaker if you plan smart, right out of the gate. First, your seed money or your circumstances may determine your initial investment decision as to whether to go with a Multi-Family Residence (MFR) or a Single-Family Residence (SFR).  With that said, let’s examine the pros and cons of investing in MFRs and SFRs so that you will be aware of what would come next for you with each scenario.

Four Good Reasons to Invest in a Multi-Family Residence

At first glance, investing in a multi-family residence seems to bring the most cash flow. After all, more units to rent means more money, right? Well, that depend on your long-term goals. Here are 4 reasons consider investing in an MFR.

1. Property Cost: 

   While it’s true that the overall cost of an MFR will outstrip an SFR every time, remember that the per- unit cost will be far less. Additionally, your cost to maintain that unit and even property-manage that unit will be far less on a per unit basis. 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 need 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 that will mean higher cost. In addition, your state may require an onsite employee, as in a property management professional, if the MFR is over a certain number of units.

2. Financing: 

   Banks will limit the number of mortgages you can hold, even if you have great credit—usually to 10. But, if you finance 10 MFRs with 5 units each rather than 10 SFRs, that reflects a lot more units you can call your own. And you can enjoy the cash flow of all those tenants.

3. Vacancy Expenses: 

   This is a no-brainer. If your SFR remains empty, that means the cost for that unit is going to come right out of your pocket. On the flip side, if you have an MFR that’s only partially rented, you can offset some, if not all, of the cost with the rent of the other units that are leased.

4. 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.

 Five Positive Aspects of Investing in a Single-Family Residence

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.  Here are 5 reasons to consider a SFR.

1. Location: 

   Typically, an SFR is in a nicer locale than an MFR. Consider a quiet neighborhood and its typical location compared to where apartments are located. Good property locations can make a unit easier to rent.  After all, location, location, location still matters in real estate.

2. Tenant Quality: 

   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. Tenants that choose a SFR can have more long term residential goals.

3. Tenant Turnover: 

   Natick area property managers say that tenant turnover is the single largest cost for real estate investors. That’s why SFRs are often a better play. Longer renting tenants means you won’t have to constantly advertise, show, and re-lease your property.

4. Appreciation: 

   The Metro Boston towns like Natick have a booming housing rental market.  For property owners, there is ample opportunity to get a good return on your investment. SFRs usually go up in value over time, so the opportunity to make money just by owning a property can be significant, especially if it is managed professionally.

5. 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 or go for a 1031 exchange. Ask your professional property management company how you can have a big payday at the end of your investment which can fund a retirement or be reinvested.

So, which is right for you? That depends on your personal goals and situation. Rental property investing requires knowledge, time and patience.  With a good partner like Real Property Management Metro Boston, you can maximize your success.

 

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