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Sunday, July 11, 2010

Investing in Single Family Rentals vs Multifamily Rentals

A few years ago, I was sitting in a continuing education class for real estate agents. To my surprise, most of the attendees were real estate investors and most of them owned single family rentals. Owning single family homes for rentals had never occurred to me. Since then, I have met many investors who do exactly that.

So, what do the numbers look like for this type of investment? Here's a simple scenario, and for the sake of simplicity, I am not taking into account property maintenance expenses.

What are the Risks?

For a single family property, vacancy rate is 100% or nothing. For a mulitifamily property, vacancy rate is usually 85-90% occupied.

The exit strategy for a single family may be easier to accomplish because you can either retail it outright or get a rent-to-own tenant.

Investing Out of State

If you live in a high property value area, you can choose to invest in single family homes out of your state where property values are lower. Although, this may make your cash go further, some investors may pay too much for out of state property. Make sure to do comps on your bargain finds because if you pay more than the correct price for the area, you may lose profit when you resell. And, of course, lower property prices mean lower rents and lower cash flow.