For a new real estate investor, the question of purchasing either a Multi-Family Residence (MFR) or a Single Family Residence (SFR) rental property can be tough. Like many things in life, there are benefits and drawbacks to each, so you need to identify what is best for you.
Why Invest in a Multi-Family Residence?
When you first start evaluating MFR versus SFR, an MFR investment seems to give more cash flow because more units to rent means more money, right? Well, that actually depends upon your goals for your rental property in the long run. Here are some reasons why you should invest in an MFR.
We don’t deny that the overall cost of an MFR will surpass an SFR. But in terms of the cost per unit, an MFR’s cost is far less. Aside from that, with an MFR your expenses to maintain and manage will be less on a per unit basis. For instance, say you have 2 SFRs, and 1 MFR with 2 units. The MFR enjoys lower costs for things such as repair and maintenance. If you need to change the plumbing in the MFR, you can do one large job on both units. With the SFRs’ case, you need to pay for two separate plumbing jobs, which will mean a higher cost. However, your state may require an onsite employee if the MFR is greater than a certain number of units.
Even if an investor has the best credit, banks have restrictions on the number of mortgages an investor can hold, usually up to 10. But if you finance 10 MFRs with 5 units each, then you have 50 total units. You get to enjoy the cash flow from all those tenants as well.
If your SFR is unoccupied, then you have 100% vacancy. On the other hand, with a partially rented MFR, you can offset some, if not all, of the cost with the rent of the leased units.
With most MFRs, you will generate cash flow more quickly, particularly with newer units. However, MFRs often do not age well so more of that initial cash flow will be used for maintenance and upkeep costs. Be mindful of this as you select which type of rental property to purchase.
Why Invest in a Single Family Residence?
So why would someone consider an SFR instead of an MFR? It heavily relies upon your goals. If your goal is to invest in a property and see a greater return on your investment in the long run, then SFRs might be the best option. Below are some reasons to select an SFR.
Usually, an SFR is in a better area than an MFR is. A unit in a good location is easier to rent. Location, location, location continues to be an important consideration in real estate.
Many property management companies will tell you that SFR tenants are more attentive to their properties than MFR tenants are. This occurs because SFR tenants view their unit as a home, rather than just a place to sleep and eat.
Tenant turnover is often the greatest cost for a real estate investor. Longer renting tenants means that regular advertising, showing, and releasing your property are unnecessary. That’s why SFRs are often a better choice for a rental property.
SFR value typically increases over time, and so the opportunity to make money simply through property appreciation can be significant.
So, what option is the best for you? That depends on your goals and situation. No matter what kind of rental property you plan to purchase, consider letting a property management company help you.
If you are interested in having your property managed by Real Property Management Metro Detroit, have more questions, or just want to speak to one of our team members, then contact us online or call us directly at 248-808-6550 today!