Are you a small investor in the Milford area real estate market wondering which option offers the most chance for financial success: buying a single family home or a multi-family property? Advice is plentiful, so consider the source, and therefore the perspective, of your advisors.
Large investors might say that multi-family properties are better because they allow you to scale up your investments at a rapid pace. BUT for small investors, single family homes usually provide a better way to succeed in the real estate investment market. Some of the reasons why single-family homes provide a good investment for smaller investors, are easier financing, higher rates of return, better stability, and opportunities to diversify. Many small investors choose single family homes because they often cost less than multi-family properties. Lower numbers makes qualifying for financing easier for small investors, and that will lead to flexibility for future acquisitions down the road.
Large investors may think multi-family homes are a better investment because they think the higher numbers on paper mean greater profitability, sooner. BUT they can actually be less profitable. The comparison doesn’t come only from initial cast and rental income, but also from availability of promising properties that start at lower prices, and that are in greater supply. Don’t forget that, by definition, large investors have more money to put into a new acquisition.
Single family homes also offer a good investment because of a potentially higher rate of return. When you do the research, you can find properties that offer a capitalization rate (net operating income divided by current market value) higher than a lot of multi-family properties. Particularly if you can purchase single-family properties in communities where rents are high compared to house values, you ought to make more money on them. Remember also that single family homes have historically appreciated more than multi-family properties and tend to hold their value well.
Another point in favor of the single family property choice is the stability it offers. Simply put, single family homes offer stability in that they attract more stable, longer-term renters. Small investors can save on the routine expenses involved in high turnover, which is a constant challenge for the multi-family investor. Known for high turnover rates, multi-family properties will likely require more work and expense just to keep the rents coming in every month.
Finally, it’s great to diversify your investments. When you purchase single family homes, you can spread your investment capital over different towns, hedging against declines in market value. The same can’t be said for a multi-family property. For the same amount of money that you’d spend on one multi-family property, you can own several houses in different locations. Now that’s a smart investment strategy!
Once you have made your choice of investment, your next smart strategy is to partner with the right property management company. Working together with other professionals can ensure that your investment is profitable by selecting great residents, negotiating favorable contract terms, and reducing your overall operating costs. As a small investor, you need the right people to help make your real estate investment goals a reality. At Real Property Management Metro Boston, we have the expertise to help you reduce your costs and keep your profits high. With our competitive pricing and guarantees, you can be confident that your real estate investment is in the right hands. To learn more, contact us today.