“Multifamily is difficult for smaller investors to get into unless they have a lot of capital on hand. If you start out with single-family houses, banks will incrementally grow with you into multifamily. Plus, single-families involve a lot less risk.” - From a Real Estate Investor in Sacramento, CA 

One of the essential area of Criteria for real estate investor is property type. Are you looking for single-family homes or multifamily properties, urban or suburban, resort or ranch, new construction or resale, lots or land? Today let’s just focus on residential real estate - properties people live in - let’s take a closer look at the single-family and multifamily properties.

You can acquire houses, condos, and apartments individually or buy them in bunches by purchasing duplexes, triplexes, fourplexes, and even larger condo and apartment complexes. The conventional wisdom is that single-family homes offer the most reliable demand and appreciation while multifamily properties offer the best opportunities for cash flow. On the surface this plays out. In most markets, the majority of buyers want to own a home, and so this demand tends to keep prices moving upward over time. Also, by and large, the market for single-family homes is set by non investors. These individuals are buying a home, and emotional factors play into their willingness to buy at a certain price. Multifamily properties, in contrast, are bought and sold largely by investors, and this means that their prices are determined dispassionately by the value of the rents they represent.

However, rents appreciate over time at almost the same pace as home appreciation. Thus, by default, both single-family and multifamily properties go up in price over time. The two tend to be countercyclical. When housing is affordable, rents go down and vacancies to up; this means houses are appreciating in value while rental properties and rents decline. But when housing becomes less affordable, the opposite tends to be true: Vacancies go down, and rents rise. Neither option - single-family or multifamily - is intrinsically better than the other. They both offer strong benefits to an investor over time.

The decision to include single-family or multifamily properties in your Criteria ultimately depends on your goals. You can buy single-family homes for appreciation and relative stability - building your net worth - or you can emphasize multifamily properties that offer multiple streams of income - building your cash flow.