The return on investment received by investing in single-family rentals tends to be higher than from other rental types however, banks are more easily persuaded to give a mortgage to real estate investors for multi-family properties due to the risks being lower. Financing the purchase of multi-family homes is much easier than of single-family investment properties. In single-family homes, if you want to make repairs or improvements to the building it only increases the value of that one property as opposed to many in a multi-family property. Even after that reduction in cash flow, you’ll still have 90% of your regular monthly rental income to cover the property’s mortgage and operating costs. On the other hand, if a multi-family rental owner loses a tenant, its only 10% vacant. If a tenant moves out of a single-family rental, it is 100% vacant. Multi-family rental owners are also far less likely to have zero rental income. It is rare to see a multi-family home totally vacant. Also one of the disadvantages of a single-family homes is that if the property is vacant you would have zero income until the management company replaces the tenants whereas with a multi-family home they can lose a tenant but can still produce an income with the other occupied units. Yes single-family homes are a lot easier to acquire but when it comes to growth this would be slower than the multi-family homes.
“If a tenant moves out of a single-family rental, it is 100% vacant” You'll have at least several units on your hands, and having the cash flow and profits that come with it isn’t such a bad thing either! Buying a multi-family home means an instant real estate portfolio. A portfolio of 10 units would mean 10 negotiations, 10 mortgage applications, and 10 closings, and it would take much more time compared to multi-family properties which let you scale up with just one purchase. If you’re looking to build a big real estate portfolio single-family homes are not the way to go. “Buying a multi-family home means an instant real estate portfolio” There's more room for error, and you may have more capital to further grow your investing business if you do it right. The extra cash that comes with multi-family real estate can help safeguard you from loss.
However in multi-family homes you have a better cash flow and a bigger financial cushion.
You're only getting a handful of rent payments per month, and a large chunk of those are going toward your mortgage, maintenance costs, and admin fees. In single-family homes there is not a strong cash flow (unless you own several properties). We have explored some of these points below. Both are very attractive and popular but investors need to consider there are significant differences in terms of cashflow, risks, maintenance and returns on investment. On the multi-family side, you’d be buying apartment buildings. With single-family, you'd be buying traditional homes built for one family or household. If you're looking to actively invest in residential property, most investors will consider two types: single-family home or multi-family home.
“Why is a multi-family home a better buy to let investment than a single-family home”