Are you trying to decide between investing in a single-family vs multi-family property? We understand that this choice is crucial. It’s not just about picking a property, but it’s about finding the right match for your money goals, your way of investing, and how you see your money growing in real estate.
In this guide, we’re going to tackle the ins and outs of both single-family and multi-family home investments. We’ll also discuss each property type, weigh the pros and cons, and highlight the factors that could determine your investment decision. By the end of this guide, you’ll be confident to pick the property that fits best with your plans.
What is the Difference Between a Single Family vs. Multi-Family Home?
A single-family home is a house where one family lives without sharing walls with other homes. Usually, there are no shared walls inside the house. It has one kitchen and uses utilities just for one household. For it to be called a single-family home, it must be on its piece of land. Thus, not connected to other houses nearby. On the other hand, multi-family homes contain different units under the same roof. Examples are apartment buildings and duplexes.
Landlords, investors, and even Northern Virginia property managers need to know the difference between the two to tailor-fit their investment strategies, assess potential risks and rewards, and effectively manage their properties.
What is a Single Family Home?
A single-family home is a residential property designed to accommodate one family or household. But, unlike multi-family properties, such as apartment buildings or townhouses, a single-family home stands alone on its lot or parcel of land. Thus, offering privacy and independence from neighboring properties.
6 Different Types of Single-Family Properties
Under single-family properties, there are 6 different types that you need to be aware of. Each of them has their unique style and design. As an investor, it’s important to know these types to make informed decisions and maximize your investment potential.
Ranch
Ranch-style homes are known for their single-story, extensive design that emphasizes horizontal lines. They often feature an open floor plan, with living, dining, and kitchen areas flowing into one another. Additionally, many ranch homes also have attached garages.
Colonial
Colonial homes are known for their symmetrical features, typically with a central front door joined by multi-paned windows on either side. They often have two or three stories, with bedrooms located on the upper floors and living spaces on the ground level.
Bungalow
Bungalows are typically small to medium-sized houses. For example, they’re just the right size—not too big, not too small. You’ll often see a spacious front porch where you can relax, along with low-pitched roofs and beams that you can see inside. The style is known for its emphasis on craftsmanship and efficient use of space.
Victorian
Victorian homes are known for their fancy detailing, asymmetrical appearance, and high pitch roofs. They often feature decorative trim, bright colors, large bay windows, and complex woodwork. Inspired by the Victorian period, these homes are built with a variety of architectural styles such as the dramatic Gothic Revival, the enchanting Queen Anne, and the majestic Second Empire.
Modern
Modern architecture emphasizes clean lines, minimalism, and a connection between indoor and outdoor spaces. These modern homes often feature open floor plans, large windows, and industrial materials like steel, glass, and concrete.
Pros and Cons of Investing In a Single-Family Property
Before investing in a single-family property, an investor should be aware that each property has its own set of pros and cons to guide them in selecting the right property that aligns with their goals and preferences. Here are some pros and cons to consider when trying to invest in a single-family home:
Pros
- Privacy: Living in a single-family home is like having your little island. You’ve got space all around you, so you don’t have to worry about neighbors being too close.
Want to put up a big fence for more privacy? Go for it. Thinking about getting a dog or setting up some outdoor lights? You can do all that without having to ask anyone else.
- Customization: Customization is another big plus of living in a single-family home. You can plant a garden, build a deck, or even add on to the house if you need more room. Plus, any changes you make can also boost the value of your home if you decide to sell it down the line. It’s a way to make your living space truly feel like yours, reflecting your taste and lifestyle.
- Community: It’s a bit different from living in an apartment where you might run into your neighbors in the hallway or share common areas. In a single-family home area, community vibes come from things like neighborhood block parties, barbecues, or holiday decorations competitions.
You might find yourself chatting over the fence with your neighbor or joining a local neighborhood watch. Kids often play together in the streets or backyards, which helps families get to know each other.
- Investment: Investing in single-family homes is worth it as property values tend to go up. So, if you buy a home and take good care of it, there’s a great chance you’ll be able to sell it for more than you paid.
Also, if you decide to move and don’t want to sell your home, you could rent it out. Besides, renting your home can give you a steady stream of income every month, which can help pay the mortgage or even generate profit.
Cons
- Maintenance: When you’re the homeowner, you’re also the handyman, gardener, plumber, and everything in between, unless you decide to pay someone else to do it. Therefore, this means any repair or upkeep—from fixing a leaky faucet to mowing the lawn or shoveling snow—falls on your shoulders.
These tasks can take up your time and money. Unlike in an apartment or condo where the landlord or association might take care of most maintenance issues, in a single-family home, you’re responsible for all of it.
- Cost: When choosing to invest in a single-family home, it’s important to note that the upfront fees for a single-family home are typically higher. However, the costs don’t stop there. There are mortgage payments, property taxes, and homeowners insurance to consider.
And, let’s not forget about utilities. In a single-family home, you’re responsible for paying for water, electricity, gas, trash pickup, and potentially other expenses depending on your living situation.
- Isolation: Unlike shared buildings with lobbies, corridors, or shared outdoor spaces that facilitate natural interactions, living in a single-family home may feel isolating. Those who live alone, work remotely, or are new to the area without an established social circle may particularly sense this isolation.
That said, if you’re an extrovert person, making an effort to meet neighbors becomes essential as everyone has their own exclusive space and may not frequently come out.
What is a Multi-Family Home?
A multi-family home is characterized by multiple units in a building or connected by shared walls under the same roof. For instance, the owner of a multi-family home can either live in one of the units and rent out the others, or live elsewhere and rent them all out.
Multi-family homes fall under two primary categories: residential and commercial. Each serves a different purpose, but both share the characteristic of being a multi-family home.
Residential Multi-Family Properties
A residential multi-family property, typically housing four (4) units or less, is commonly known as a multi-dwelling unit (MDU). This classification of housing contains multiple individual units within one building or across several structures within a complex.
Many potential investors are interested in residential multi-family homes and intend to occupy one of the units as their primary residence. This choice allows them to take advantage of loans with lower down payment options, such as Federal Housing Administration (FHA) loans.
Commercial Multi-Family Homes
Buildings containing more than four (4) units are categorized as commercial properties, yet they are still considered multi-family homes or apartments.
Obtaining commercial multi-family properties requires tailored financing arrangements designed for commercial real estate transactions. These financial options are commonly provided by private lenders or local banking institutions.
7 Different Types of Multi-Family Properties
Before we discuss the 7 different types of multi-family properties, we want to remind you that no one type is better than the other. It will all depend on your investment goals and personal preference. Here are the six different types of multi-family properties get you started if you are considering investing:
Duplexes
A duplex is a single building divided into two separate living units, each with its entrance. They can be side-by-side or stacked one on top of the other. Duplexes offer a more intimate living situation and can be an excellent option for landlords to live in one unit and rent out the other.
Triplexes
Similar to duplexes, triplexes consist of three separate living units within a single building. Each unit has its entrance, and the units can be arranged in various layouts. Triplexes can provide a higher income potential for landlords due to the additional unit, while still maintaining a manageable number of tenants.
Fourplexes
A fourplex is a building divided into four independent living spaces. Like duplexes and triplexes, each unit in a fourplex has its entrance, utilities, and amenities. Owning a fourplex can significantly increase rental income potential, making it an attractive option for investors looking to expand their real estate portfolio.
Multiplexes
This term generally refers to residential buildings with multiple units, but more than the four found in fourplexes. Multiplexes can vary widely in size, offering many rental units under one roof. They require more management and maintenance but can yield a high rental income and diversify a landlord’s investment.
Condominiums
Condominiums are individual units within a larger building or complex, where each unit is owned separately, and common areas are jointly owned and maintained by an association. For landlords, condos can be a lower-maintenance investment option since the homeowners’ association (HOA) usually takes care of external repairs and common area maintenance. However, condo owners must pay HOA fees and comply with association rules.
Apartment Buildings
Typically, apartment buildings are larger complexes containing multiple rental units, ranging from a few units to hundreds. Apartment buildings can offer significant income potential and benefits of scale in management and maintenance. They require a substantial initial investment and ongoing management to address tenant needs, maintain the property, and comply with regulations.
Townhouses
Townhouses are multi-floor homes that share one or two walls with adjacent properties but have entrances. They often come with HOA fees for common area maintenance and can vary in size and amenities. Townhouses can be an attractive option for renters seeking a more house-like living experience with less maintenance, and landlords, offer a balance between the benefits of single-family and multi-family property investment.
Pros and Cons of Investing in a Multi-Family Home
Knowing the pros and cons helps potential investors make informed decisions regarding their potential rental income, property management responsibilities, and financing options, which can significantly impact their investment returns and overall portfolio strategy. Here are the pros and cons of investing in a multi-family property:
Pros
- Lower Costs: Multi-family properties can lead to lower costs per unit when it comes to maintenance, repairs, and renovations due to economies of scale. Buying supplies in bulk or contracting for services for multiple units at once can also reduce costs.
- Tax Benefits: Investing in multi-family properties comes with several tax advantages, such as deductions for mortgage interest, property taxes, operating expenses, insurance, and depreciation. These deductions can significantly reduce the taxable income generated by the property, thus enhancing its overall profitability.
- Low-investment Risk: Multi-family properties are considered lower risk compared to single-family units because they generate multiple streams of income. If one unit becomes vacant, the property continues to produce income through the other occupied units, offering a buffer against complete income loss.
- Easy to Finance: Lenders often view these properties as less risky due to their steady cash flow and potential for higher rental income. This can make it easier for investors to secure financing at lower interest rates, making the investment more attractive.
- Larger Tenant Pool: With more units, multi-family properties can attract a broader range of tenants. This diversity can lead to higher occupancy rates, providing a more stable income that helps in paying off the property investment more quickly.
Cons
- Stricter regulations: Multi-family properties are subject to a variety of local, state, and federal regulations, including zoning laws, building codes, and housing standards. These regulations can be more complex and strict than those for single-family homes, requiring investors to be more diligent and possibly incur higher compliance costs.
- More capital upfront: The initial investment required for purchasing a multi-family property is generally higher than that for a single-family home. This can make it challenging for some investors to enter the market without significant capital or financing.
- Harder to Manage: Managing a multi-family property involves dealing with multiple tenants, which can increase the complexity of property management. This includes handling more leases, maintenance requests, tenant complaints, and potential conflicts, requiring more time and effort from the property owner or manager.
- More Responsibility: As a landlord, owning a multi-family property comes with greater responsibilities, not just in terms of management but also in maintaining the property’s safety and livability.
Ensuring compliance with all relevant laws and regulations, keeping common areas clean and functional, and addressing tenant issues are critical tasks for a landlord. So, it is essential to be prepared, or you can hire a property management company in Baltimore to help you ensure your rental units remain in excellent condition.
Should I Choose a Single Family or Multi-Family Home?
At the end of the day, choosing between a single-family and a multi-family home is deeply personal and should align with your overall life goals, as both options offer unique advantages and disadvantages. You will need to carefully evaluate your current lifestyle, financial situation, and future aspirations before making a choice.
Get the Help you Need from Bay Property Management Group
We’re here to help you! Whether you’re a potential investor, landlord, or property manager, we can help you make a decision that best suits your real estate needs.
