There will undoubtedly be significant opportunities coming up in the residential investment market, on both the single-family and multi-family investment side. As a piece of common knowledge, investment in rentals offers a good return on the initial investment. This is more assured, especially if a property investor finds and follows a specific winning investment strategy. A definite investment strategy helps to shape the future for the investor, although real estate investors are usually diverse after having sufficient experience. Two of the most common investment strategies for real estate are single-family homes and multi-family homes. For a clearer picture and better understanding of the difference between single-family homes and multi-family homes, one has first to see what each one is as a chance to invest.

Single-family homes are real estate properties that house one family. They are usually in the form of a detached house, a townhouse, or a condo, to mention but a few.

Multi-family homes, on the other hand, are real estate properties with more than one unit, which can eventually accommodate more than one family. Such property can be an apartment building, a duplex, or triplex. Now that we have an understanding of what these properties are, it is time to answer a more important question that real estate investors have. The question is, Which is a better choice? Single-family or Multi-family investments? However, to find an answer to this cogent question, we must first find the similarities between the two as investment properties.

Similarities Between Single-Family Homes & Multi-Family Homes

An investment in either single-family or multi-family homes would demand the payment of high-interest rates and a down payment of at least 20 percent. This could be a heavy price for certain real estate investors. However, this can change if the intention of purchasing the property is for the owner’s residential purposes and not as an investment in real estate. Banks are more strict on investment properties as they have more risks involved. The long-term return on investment is perfect for single-family homes and multi-family homes. Typically, both types of income properties generate more than 1% of the property’s value per month. Hence, positive cash flow. It can be advantageous for buyers to take a mortgage loan to fund the purchase of either of the rental properties. This is because real estate investors can easily pay off mortgage expenses through rental income.  Investing in either of these forms of income property will result in tax benefits that can be very helpful in reducing expenses. The tax benefits may be in the form of tax deductions related to mortgage and property tax-related. Ideally, single-family homes offer a lot of privacy and confidentiality. It’s a free-standing structure in a neighborhood or community with no shared spaces, and no common walls or doors. Multi-family houses are dwellings with two or more families or roommates. They include duplexes, triplexes, and residential apartment buildings with several units. 

Yet with these similarities, investors, insurers, and lenders view these properties differently.

Residential Occupancy

Usually, the owners of that property and their family members occupy a single-family home. On the other hand, multi-family properties are majorly purchased for investment purposes, and occupants of such houses are often tenants who rent the property from the owner. In some cases, the property owner also lives in one of the units of the multi-family property. For example,

if you buy a duplex, you may choose to stay in one unit while renting out the other to earn income.

Mortgage Considerations

Securing a mortgage for a residential single-family house is different from financing a duplex, triplex, or a multi-unit property. Lenders will be more interested in the property’s income potential. They will want to ensure that the rent received meets the mortgage criteria. It is advisable to work with a commercial real estate broker or mortgage professional who has experience in multi-family funding.

Insurance Issues

Homeowners insurance will cover owner-occupied single-family homes while a dwelling policy is required for multi-family properties. The cost depends on the property’s size and value, as well as any additional coverage purchased. 

For example, someone who owns an apartment building close to water may need additional insurance coverage against flood or mold. Most owners of multi-family properties recommend that tenants should acquire renters insurance to protect personal belongings within the building.

Differing Markets

For each type of property, the housing market varies. People tend to buy and sell single-family homes more when the sales market is strong. However, investors buy more multi-family units when there is a high demand for rental property.

They do this with the business intention to rent them out to a large pool of tenants. So, if you’re wondering which type of property to buy, the answer comes down to what your personal preferences are regarding residential rental property investments. Therefore, consider whether you want a property with long-term investment potential or just a new place to live.