Multifamily Vs Single Family Rentals

Multifamily Property vs Single Family Property

Susan's question: What's the difference between how multifamily properties produce and single family properties produce?

This would be generalizing. Obviously, every property is different, but with a multifamily property, we would expect the expenses to go down. The likely reasons why I feel that the expenses would go down with a multi-family property is it's kind of expensive to get a contractor to your property to begin with. And it's definitely expensive to get a contractor to the property the first time. Once a contractor's been there and the contractor is familiar with the parking and access, how he or she's is getting to the property, then the price tends to go little bit down. And if the contractor's already in the property because that's what cost, it's getting the contractor to show up, traversing from their location to the property.

Once the contractor's there, it's not a big deal for him to take care of unit A and also unit B. The advantages are, you have one roof, you don't have multiple roofs, you don't have multiple systems, you don't have multiple walls, et cetera. In that case, the expenses are expected to go down. Interesting enough, the rents also go up at a multifamily. So if you all things were equal, we had two different units, one of which is a single family home. And it's the same size, same quality as the same unit in a multifamily. Then the multifamily would rent for a little bit more, again, generally speaking.

Also, they tend to be vacant for a short period. I don't really know what creates that dynamic. Other than the fact that you actually have the existing tenants in the property helping you to find folks; people will come over to visit them and they'll most times mention that a property is available.

The downside to multifamily, and right now multifamily probably sound pretty good to you. The downsides would be liquidity. They're just really difficult to sell. And they're so difficult to sell that I think people feel that multi-family properties are not going to appreciate the same way that a single family would. So the general thought is, is that a single family property is going to appreciate, whereas in a multi-family property not as much. That's not true. That doesn't make any sense. The property's going to appreciate and it's going to appreciate the same rate that a single family is going to appreciate. The disadvantage is in finding a buyer.

There's only x number of folks looking for multi-family properties and they're typically investors. And that's why I think also the sense is that you're not getting the appreciation is that investors want a deal, so they are going negotiate for the best price for the property.

A young couple looking to move comes and looks at your home and it has all these wonderful little features, French doors and things that they just must have; they're willing to go into their pocket to pay to get these items. Whereas, multi-family investor is really looking at the numbers, so they're not going to overpay you for the property. And then of course it's really difficult to find that investor.

On average, for every 3000 single family buyers that are looking for a home to live in, there probably is one investor looking. So if you really need to sell that property and you really want to sell it, or if another investment comes and it's time to move on; you're not going to be able to quickly sell it. But as far as the appreciation goes, I don't understand why people feel multi-family properties don't appreciate. They do. There just would be of a lower value. Example, if you actually had a multi-family property that was 2000 square foot, you probably would have more appreciation or more value with two properties that were single family homes that were each a thousand square foot. Those two properties would be easier to sell and thus, would have more value. But the appreciation is still the same. You still bought your multifamily property for what you bought it for and has still appreciated. Nothing has really changed that, and it's appreciated probably at the same exact pace with very little deviation from the multifamily market, it's just not coming into value as much because you don't have a buyer that's willing to pay as much.


Joe White

Joe White is a Philadelphia Property Manager and Real Estate Broker. He is the owner of Grow Property Management and has been involved in the management, sales and purchases of Philadelphia area rental investment properties since 2008. He is an author and works as a real estate investment consultant and construction manager.

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