Buying Single-Family Homes vs. Multi-Family Homes: A Case Study

Typically, this discussion will lead you down the path of buying apartment buildings vs. single-family homes…but I want to discuss whether it’s better to buy a single-family home (SFH) or a multi-unit home (MFH).

So, for this article, an SFH is defined as a property (could be a single family home, condo, townhome, row house, etc.) that has only 1 unit and therefore only 1 family living in it. she. An MFH, for the purposes of this article, is defined as any property that has more than 1 unit/family living in it. So it could be a house with a basement suite (2 units), a duplex (2 units), a triplex (3 units), etc.

For this example, we are using 2 single family homes that I purchased and compared them to 1 MFH (a side-by-side duplex) that I purchased. The reason we compare 2 SFH to 1 MFH is based on purchasing power. Basically, if you have X amount of dollars to spend, you want to be able to compare based on that amount, rather than looking at, say, $400,000 for an MFH vs. $300,000 for a SFH.

Here are the numbers in our real-life case study on buying single-family vs. multi-family homes:

Bought 2 properties from SFH:

1 – $74,500, rent was $720 per month

2 – $72,500, rent was $500 per month

• Total cost: $147,000, total rent was $1,220 per month
• Total expenses on these two were $1,200 per month.
• Exciting $20 Net Cash Flow Per Month!

Today’s Value: Total of $330,000

Total rent today: Total of $1,348

Total expenses: Total of $1,400 per month, currently a net loss of $52 per month

Bought 1 MFH (duplex side by side)

1 – $152,900, rent was $1,600 per month

• Total expenses were $1,300 per month
• Net Cash Flow of $300 per month!

Today’s Value: $350,000

Today’s rent: $2,450

Total expenses: $1,900 (after refinancing)

Net Cash Flow of $550 per month!

What do you think is the best investment? Well, in most cases I think our smart readers will think that the MFH property is the best investment. And, for some of you it would be. It’s giving us excellent cash flow, that’s for sure!

There are a few reasons why I’m not so sure MFH is the clear winner. Let me explain why…

1. The 2 SFHs are in a prime development zone, so the value of the LAND just keeps going up and up! So the opportunity for a good appreciation is stronger in that area than where the MFH is.
2. The 2 SFH are in freehold vs. the MFH is in a community of strata. So there tend to be more restrictions on what you can and cannot do in a strata community than when you own land with freehold title.
3. We have had a total of 4 different tenants at BOTH SFH in over 5 years! 1 of our tenants has not changed since we bought it and the other property has had 3 different families for 5 years. Meanwhile, our MFH, while a pretty good duplex, has had over 8 turnovers in the same time period. Higher turnover means higher placement costs, higher maintenance costs, and more stress!

So the reason I’m sharing this example with you is to give you an idea that there is often NO CLEAR WINNER between SFH and MFH when it comes to investing in real estate. What matters is not which is a better investment, but which is a better investment for YOUR time, energy and resources.

Before deciding that multi-family homes are the best investment because they have the potential for better cash flow, first ask yourself these questions:

1. Who will respond to potential tenant disputes (me or a professional property manager)?
2. Does the MFH have legal or illegal suites? If they are illegal (which many are), just be prepared that if a noisy neighbor complains, you may have to work with the City to legalize the suite (can be expensive) or dismantle it. Either way, this can eat up some of your time, energy, and money. So make sure you don’t mind doing this.
3. Who is going to pay all the bills for heating, water and electricity? If each suite is not metered, you’ll want to determine if you can make your tenants pay their share or you’ll have to include it in the rent.

What before you decide investing in single-family homes is the way to go? ask yourself:

1. Can I assume the expenses (mortgage, electricity, taxes, insurance, etc.) when there is a vacancy?
2. Do I want to pay a property manager to manage just 1 tenant or can I handle weird late night repair phone calls and some minor maintenance issues?
3. Do I strive for more liquidity in my investments (the ability to sell faster)?
4. Do I want the potential for further appreciation or just monthly cash flow?

Instead of listening to what else people think is the best investment, go out there and decide for yourself. In all likelihood, whichever one you think fits your skills, personality, and aptitude will be a better investment for you. But you’ll never know until you start…so go ahead and get started!