If you are looking forward to investing in real estate, it might do you better to know the difference between single-family homes and multi-family homes. Understanding the distinction between the two will let you know which is more advisable to invest in and which would be more profitable in the long run.
Without further ado, here are three reasons why a multifamily real estate property is a better investment rather than a single-family home.
1) Better Stability
When it comes to economic stability, your best option out of all types of commercial real estate is multi-family homes, not just over single-family homes.
People always need a place to live—homes will always be the last thing they give up. Cars or businesses will not amount to the value of homes. They always have to settle down somewhere, which is why multi-family homes are stable sources of profit.
If you invest in a single-family home, your profit will easily drop once a tenant leaves. In contrast, when you have a multi-family home, the loss of one tenant will still impact your profit but not as much as that with single-family homes. In addition to that, multi-family homes have a slower downturn when it comes to rates of rent dropping.
2) Higher Value
When you have a multi-family home, you have more control of your real estate value. This is something that professional investors greatly value, so you should, too.
Single-family homes are valued by using a comparative approach. This process means that if your house sells for $1,000,000, it will only be worth $1,000,000. Remember, the bank does not care about the potential of your property. Whatever the original value is, it will stay like that.
Multi-family homes, on the other hand, are valued using the income approach. This means that the potential of the house is considered—the more free cash flow the house can produce, the higher its value. Multi-family homes will give you control of your additional profit streams, optimize your expenses, and even raise the rent. It gives you the ultimate control over your property’s value.
3) Greater Cash Flow
Single-family homes can easily and will absolutely kill your cash flow. Your profit depends on your tenants, so your cash flow will be severely affected if they leave. This, however, does not really happen in multi-family houses.
Multi-family houses can free your cash flow because it contains more units. The expenses are spread out over these units, so your ratio of expenses per unit decreases. As you can see, you have a greater advantage in expense ratios.
Another thing to consider is management fees. With multi-family houses, you can improve cash flow because your management fees are notably lower, at only around 3 to 4 percent.
You must explore the most profitable option when investing. After all, real estate is a reliable source of passive income that can help you remain financially stable in the long run. Through multi-family home rentals, you will be able to achieve this goal as long as you make intelligent choices on when and where to invest.
If you are looking for a trustworthy Manitoba real estate agent to help you find the right property, you can contact Chris Low. He is an experienced real estate agent in Brandon, MB that can help you understand the community, competitive opportunities, and the various decisions you can make before you sign the dotted line.