Investing in single family home vs investing in multi-dwelling units

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Investing in single family home vs investing in multi-dwelling units – SFH-MDU

Most investors grapple with the question whether investing in a single family home (SFH)  brings better returns than investing in a multi-dwelling units (MDU) and vice versa. The former type of property is essentially a single unit that can accommodate only one family, and usually comes in the shape of detached house or an attached home (e.g. townhouse). Whereas, a multi-dwelling unit house more than one family and these could take the shape of a property with a basement suite, a duplex, a triplex, a quadplex and so on. Before one considers investing money in either type of property, it would be a good idea to understand what the advantages and drawbacks of both types of investments are.

The biggest advantage of investing in a SFH is the fact that in most cases such properties appreciate faster than MDU. This is on account of a larger number of people wanting to own such homes. The same factor is also responsible for providing better liquidity at all times when compared with MDU. What’s more, for those who rent out such a property, managing the tenant is easier as there is only one of those to deal with. Besides, obtaining finance for such properties is easier as well. On the flip side as a SFH can only accommodate one tenant and in the event of their leaving, one’s earnings stops abruptly. Also repair and maintenance costs are higher per unit in the case of a single family home. Finding tenants too is a little difficult, as such homes generally not centrally located.

The advantages of investing in a MDU mainly accrue from economies of scale. For one, the per unit investment cost usually happens to be lower than in the case of single family homes. Similarly, there are also lower utility costs. The fact that there is more than one unit to rent our means that one has more liquidity with this kind of investment. The drawbacks of this kind of investment pertain to the fact that the total expenses go up on account of the multiple units one has to take care of and the case of lower price appreciation. The latter is on account of fewer people wanting to buy multiple dwelling units than single family homes. The time taken to sell too is longer in this case. The hassles of simultaneously managing many tenants can also be quite an issue with this type of property investment.

On the whole both types of investments have certain positives and some negatives. Every investor will have to take a considered call on what works best for them. A lot of local factors impact one’s decision in this regard. For instance in Chicago, one sees that investment in MDU, which can be easily let out,  is the most popular form of residential investment on account of the fact that the rental sector is outperforming the property sales sector.  Elsewhere, where a different set of local conditions prevail, the reverse may be true. At the end of the day, the decision to invest is made largely on the basis of Return On Investment.

Summary: Buying in both single family homes and multiple dwelling units has its share of advantages and drawbacks. While the former has the advantage of better appreciation and more easily sold, the latter can be rented out more easily and the presence of many tenants improves cash flow. Finally the prevalent local market conditions and the Return On Investment determine what type of investment, one should undertake.

Twitter Summary: Buying in either single family homes or multiple dwelling units is decided by weighing the pros and cons of both and factoring in local conditions and the ROI obtainable.

References- http://revnyou.com/multifamily-vs-single-family-real-estate-investing/ http://capitalsolutionservices.com/types-dwelling/ http://www.propertyhotline.co.uk/our-investments/chicago/

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