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Multifamily Vs. Single-Family Developments: Which is a Better Investment?

Multifamily vs single family developments

If you’re a commercial real estate investor, you may be wondering whether you should invest in single-family developments or multifamily properties. It’s a good question and one that’s been hotly debated for decades.

While there are benefits to each type of property, and the many subtypes within each, there are also significant drawbacks. This is especially true once you introduce private funding into the equation. After all, you want to set yourself up for as much success as possible. That means you most certainly don’t want to learn you invested in the wrong property type halfway through your project.

Keep reading to learn about the pros and cons of multifamily vs. single-family developments. Don’t hesitate to give us a call today at 855.505.LEND to discuss your commercial lending options.

Single Family vs. Multifamily 101

The first thing we need to do is explain exactly what makes one property a single-family and another a multifamily. While it might seem obvious – one is for a single family and one is for more than a single family – there’s actually more to consider.

Single-family homes go by numerous names, including a detached residence, a detached house, or a single-detached dwelling. Whatever someone calls them, single-family homes are defined by two facts:

  • Individual houses have individual access to a street
  • Individual houses have individual utilities (water, heating, AC, etc.)

So, it’s possible that a single-family home can share a wall, or even a lot, with another single-family home. As long as it meets both criteria listed above, though, it’s still considered its own residence.

Multifamily homes, on the other hand, are a bit more varied. Multifamily’s are sometimes also called multi-dwelling units, MDUs, multifamily residential units, and mixed-use units. We’ll come back to mixed-use in a second.

The distinguishing factors for multifamily homes are the polar opposite of those for single-family homes. Multifamily properties will share access to streets and they’ll have shared utilities. Common examples of multifamily homes include apartments, condos, townhomes, brownstones, and many more.

To give you a quick idea of the difference in the number of single-family and multifamily, just look at this statistic from – there are around ninety million single-family properties across the country, but there are only four million multifamily’s.

Alright, let’s circle back to mixed-use properties. These are developments that combine a number of different uses, typically commercial and residential. A good example is a shopping center that has multifamily units above the retail shops.

Similarities Between Multifamily and Single-Family Homes

Now that we’ve established exactly what single-family homes and multifamily properties are, let’s take a look at some of the similarities between investing in them.

To invest in either, you traditionally had to put down about a 20% down payment. This has been changing over the past several decades, though. A common use of commercial bridge loans is to cover unexpected expenses that pop up in the middle of a multifamily redevelopment. These unexpected expenses are often related to adjustable rate loans that come with putting down less than 20%.

Speaking of loan rates, you may find yourself facing high-interest rates whether you opt for a single-family or multifamily investment. Banks often view real estate investments as risky, which is one more reason private money loans are a great funding option.

Both types of homes are smart investments and produce good long-term ROI. The real estate industry is one that routinely produces positive investments and, with the major exception of the financial crisis of 2007. In fact, both single and multifamily home prices have grown for the past seventy months straight. According to Forbes, this growth is likely to continue, though perhaps at a slower rate.

Single and multifamily developments also bring with them tax breaks for investors. These breaks will often take the form of mortgage tax reductions and property tax breaks.

More often than not, this is where the similarities end. Let’s take a look at the benefits of each type of home now.

The Benefits of Single Family Development

Single-family homes are often a better choice for first-time investors for a number of reasons. It’s more affordable to purchase a single family than it is to invest in a multi-family duplex or an apartment block. Expenses are also lower for maintenance, insurance, and utilities.

Single-family homes also tend to appreciate quicker because they are easier to value and sell to individuals. This results in an easier and faster-selling process than trying to sell a multifamily or commercial unit.

The Benefits of Multifamily Development

Multifamily properties also have a number of benefits and, in our experience, are much smarter investments. The most noticeable benefit is that you typically receive much, much more in monthly rental income. This makes cash flow more consistent and means that multifamily property is often safer, in terms of a risk vs. reward analysis.

You also mitigate some of your risk due to the number of tenants in any multifamily property. This is especially true once you introduce mixed-use developments into your multifamily arsenal. There are fewer vacancies and, thanks to the rental money of the occupied units, you can usually cover your loan payments even with a handful of empty properties. The same can’t be said for single-family development.

Finally, the value of the property can be boosted quite a bit if the landlord is able to maximize rental income. This is because rent is the primary method of valuation for a multifamily property. Making upgrades and choosing a property in a high-growth area can result in significant returns when it’s time to sell.

Understand Which Property is Right for You Before Looking for Funding

If you’re thinking about investing in real estate – and you should – it’s important to understand which type of property is right for your level of risk-tolerance, budget, and preferences. Some people will opt to play it conservative with a single-family investment. Others will want to make their mark in the multifamily and commercial market. Whatever you choose, it’s vital you gauge your options before investing.

If you’re an experienced commercial property investor who needs a private money loan, it’s time you contacted Lionshare Lending. Our principals have closed countless successful loans over the past several decades. We’re here to make sure you grow and thrive because your success is our success.

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