Is a multi-family property a good investment?

Is a multi-family property a good investment?  The answer to this question depends on how you define a “good investment?”  I’m going to answer this question from the angle that a “good investment”, as it relates to real estate, is a property that cash flows well and provides you with minimal headaches.

So, specific to cash flow and headaches, here are few things to consider about multi-family properties that will help you decide if they are a good investment for you…or not.

Additionally, I’m going to compare multi-family properties to single-family properties to provide you with grounds for comparison.

Pro: More Cash Flow

A very appealing aspect of multi-family dwellings is that you’ve got a single property that has multiple rental units.  This is obviously beneficial from a cash-flow perspective because you’ve got more units to deliver more cash flow.

PRO: regular occupancy

Vacant properties are highly susceptible to break ins, theft, and vandalism.  You’re less likely with multi-family dwellings, compared to single-family properties, to have 100% vacancy.  If a property is at least partially occupied, then you still have some eyes on the property.

PRO: Fewer properties to manage

10 duplexes provide the same number of rental units and 20 single-family houses.  Fewer properties to manage means…well…fewer properties to manage.  Need I say more?

So, is a multi-family property a good investment?  Well, before you decide, you should also consider the following downsides.

Con: Tenant-on-tenant issues

With tenants living so close to each other, you’re bound to have issues.  Hey, if you’re renting a single-family home, and your tenant doesn’t get along with the house next door, that’s not really your problem, in most cases.

However, with a multi-family dwelling, all tenants are yours, so quarrelling neighbors is more likely to become an issue that’s in your best interest to mediate.

Con: Parking Restraints

If you’re contemplating buying a multi-family property as an investment, carefully consider parking.  Not having adequate parking will turn otherwise good tenants away.  You may also end up with situations where tenants, and their guests, end up parking in the yard to avoid street parking.

Con: Lower Rent Per Unit

While the notion that multi-family properties are “better” than single-family properties because they offer multiple rental units may have merit, you need to understand that the rent, per unit, in a multi-family dwelling will likely be less than what you could charge for a single-family dwelling of comparable condition and location.  This is because with multi-family properties there is less privacy among other retrainsts just as less available parking, yard space, etc.

So, now that you have some pros and cons to consider, is a multi-family property a good investment for you?  For more multi-family pros and cons, check out this roofstock post.