At REI Nation, we’re often asked if we would ever buy or manage multifamily properties. Oftentimes, these questions pertain to duplexes, quads, or other small apartments.
The debate around single-family and multifamily housing (and which one makes for the best investment) is one of the classic matchups in the real estate industry. Obviously, we invest in single-family properties. That’s not to say we have not bought and managed multifamily properties in the past, but it’s not currently a model we pursue at REI Nation.
There’s a reason for this beyond our company preferences, too. It all comes down to our model of efficiency!
3 Reasons to Invest in SFR Over Multifamily
It’s been long-said that vacancies are the most expensive season for real estate investors. A priority for investors and their management teams should be the longevity of their residents’ stay. Apartments and other multifamily properties tend to attract more transient residents — those who will be looking to move again in a year or two. Most leases in multifamily housing are only for one year, but they may be shorter even than that. A typical occupation lasts anywhere between one and three years.
In single-family rentals, the numbers tell a different story. By nature, these properties are designed to attract longer-term residents — those who stay between three and five years or longer. While this may not seem like a significant distinction, it adds up.
In five years, an investor could expect to see anywhere from 10 to 12 move-outs in a quadplex, versus four move-outs in four single-family rentals. That multiplies time spent with property vacancies and the time and attention needed from management and maintenance teams.
Don’t underestimate the impact of resident turnover. It makes a big difference on your bottom line!
Pricing and Profitability
You can make the argument that having a single quadplex immediately gives you four streams of income. Would the cost for four individual single-family properties be able to compare with a 4-in-1 deal?
This is not only because multifamily properties experience a higher volume of move-outs, but because single-family properties are offered at higher price-points. You can rent a single-family property for more than a multifamily unit. Beyond the simple factor of a rent price, other factors save investors money and bolster their bottom line in a single-family property.
Single-family rentals, at least the ones we invest in, tend to be of higher quality — thus, higher price points — than a typical multifamily offering.
Not only do residents tend to stay longer in single-family properties that are at a higher price point than multifamily properties, but the maintenance demands are different, too. Transience creates increased wear-and-tear and demands more regular maintenance associated with turnover: painting, deep carpet cleaning, and other repairs. Simply put, an investor can expect fewer cash calls for maintenance in a single-family property versus multifamily units.
There’s just more need for management and maintenance in a multifamily property. This means more man-hours and more cost in terms of management and repairs. For the investor, this eats into your profitability.
Would REI Nation Ever Invest in Multifamily?
All of our decisions — where to invest, what kind of properties to buy and manage — are data-driven. Our model is wholly unique in that we prioritize excellence and attention to detail. It’s about the experience: for investors, residents, and vendors.
We don’t tend to write-off anything. If we hear from our investors that there is demand in a certain market, or even in certain types of properties, we will absolutely investigate. However, it has to make sense given the data.
In our experience, the data just isn’t there to support more multifamily properties, either in terms of acquisition or management. If that data ever reflects a solid business move within our model, you can bet we’d consider it!
For us to do multifamily, we would have to see:
- High demand
- Longer residents stays
- Multifamily as the norm in the market
If multifamily numbers can compete with our single-family numbers, it will be considered. However, we are only in the markets we are in, only investing in the properties that we invest in because the numbers make sense within our model. We want to continue to offer the very best in customer service and property management — with optimized, efficient systems that maximize the smoothness and satisfaction in the process.
In real estate investment, efficiency is key.
Take advantage of our access to data and analysis, our years of experience, and our dedication to your wealth-building success. Join REI Nation today!