Hello my friends. Welcome back to Passive Real Estate Investing where we dive into the world of real estate investing among other related topics. To help you with your real estate investing journey, today we’re doing something a little different. We’re going to take a trip down memory lane and showcase an important episode from the past on what we call our throwback Thursday episode. Now, whether you’ve been with us since the beginning, which goes back to 2015, or you’re tuning in for the first time, this episode is a must listen, we are revisiting one of our more popular episodes from the past, and believe me, what we discussed back then, whether it’s six months ago or six years ago, is just as relevant today. So sit back, relax, and let’s rewind the clock for this great episode. Enjoy.
I’m Melissa Nash, your guest host Jumping in for now. Let’s dive in.
Alright, so you are thinking about investing in real estate, but the question is, should you go with single family or should you dive into multi-family properties? Now each has its pros and cons, and today we’re breaking down both so that you can decide which one fits. Hi, I’m Melissa Nash and I’ve built a seven figure rental portfolio buying both single family and multifamily properties. They are hands off and long distance for me. Now I know both of these types of investments can bring in passive income, but they each come with their own set of challenges. So let’s dive into what makes them tick. But before we do, I wanted to remind you that you can go to www.noradarealestate.com and there you will be able to see actual inventory that we are talking about today.
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Throwback Thursday Episode (The episode originally took place in the year 2025)
This episode is part of our Throwback Series and may include references to older content such as web classes, events, promotions, or links that are no longer active or available. While the conversation and insights still hold value, please note that some information may be outdated.
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You can also download a free book about how to get started with Passive Real Estate Investing and you can also book a free strategy call with myself or one of the investment counselors here. So go ahead and go there. There’s also a link in the show notes, so let’s dive into it. First of all, I’m going to give you some of the pros to single family. Now, one of the biggest perks of single family homes is their simplicity. So you’re dealing with one tenant and one property fewer headaches than managing multiple units. It’s more straightforward and easy to understand, especially those new to real estate. Most of us have bought at least one house in our lifetime. Maybe it’s the house that you live in right now or maybe you have been handed an investment property by accident. I hear that one a lot. So it’s pretty straightforward and easy to understand because most of us have kind of done it already.
Now, however, because we are smart investors who work smarter, not harder, we will be using a local vetted out property manager. So it’s really them managing the property. But still buying a single family home is pretty straightforward. There isn’t anything too crazy here with the financing or anything else like that. So again, a big perk, simplicity. Now another thing that I love about single family homes is they are more universally appealing. What I mean by this is if the tenant moves out, the pool of buyers is pretty decent. It’s pretty big. Again, if you’re buying in an area where there is high rental demand, there is always another renter waiting around or somebody who can buy the home if you decide to sell. So I call this the exit strategy. Reselling can be easier with a single family home, okay, because again, you can sell it to an investor or you can sell it to somebody who’s going to buy it and move into it.
Owner occupied. Now, single family homes typically appreciate, well, especially if you are buying in high demand areas. So a well located property might see faster equity growth compared to a multifamily property. So again, exit strategy with multifamily, your choice is basically, hey, I have to sell to another investor. So it might take more time to sell a single family. You’ve got a bigger exit strategy and people you can sell the property to. Now, another thing that I love that is a pro for single families is they’re more abundant. Open up any of the marketing apps that you use and you know what I’m saying, there are a lot of options and it’s much faster to get in the game. You can wait and wait and wait for the perfect multifamily and you can pass up on so many really great single families that actually cashflow more and actually appreciate more.
So there’s a saying that I always say is sometimes people tend to step over a dollar to save a dime, and by waiting for that perfect golden unicorn multifamily, you might be stepping past some really great properties. So another thing that I love about single family that is definitely a pro is getting a single family loan is pretty easy. You have a lot of loan options you can get away with putting 20% down and the banks love single family investors. It’s a pretty simple process and the math is pretty simple. So you can scale with single family pretty easily because the banks or the lender is going to use the cash flow from each property to qualify you for the next one. Plus, you can get away with putting less down and you’re locked into a 30 year fixed loan. So there’s a lot more financing options for single family versus multifamily.
There’s also a lot more lenders out there that know what they’re doing. So you have a lot of options there. So if you think about it like this, if a bank or a lender thinks it’s pretty low risk, then you should think the same thing as well. It’s as simple as that because they know that if for some reason you default on the loan, they are going to be able to sell that property pretty quickly, as I explained before. ’cause There’s many routes to sell it. And also single family tends to appreciate a little bit more as long as you’re in a better high demand area. So again, the banks don’t think it’s risky, so therefore why would you think it’s risky or why would you not want to do it? A pro for single family tenants tend to stay longer. There is literal data and facts out there and all of your property managers can support it is tenants stay longer in single family versus multifamily.
Okay? So think about it like this. Put yourself in their shoes. If you are comparing, hey, I can move into this fourplex or I can move into a single family home. Usually multifamily is more temporary, transient, kind of minded, and a single family is more permanent minded. So with a single family, you might be moving your family in, you’re gonna decorate, you might buy some furniture, you’re gonna get more comfortable, you’re gonna stay a little bit longer, you have a yard. So single family renters tend to stay three to four times longer. So compare that to a multi-family where you’ve got tenants that tend to move in and out a lot more. Then that’s where you are going to lose some of your cash flow because every time a tenant moves out, you’ve got turnover costs, you’ve got a vacancy and so it costs you more money.
So the goal is to keep the tenants as long as possible and the the rate of that is just much, much higher on single family. Now, single families tend to appreciate more as long as you are in a better area, which we want you to be. We don’t want you to be in a war zone area. They appreciate more than multifamily. So when you’re comparing long term and you’re looking at a pro forma, that might show years ahead into the future. I hope that you’re looking at one of those and you’re using one of those. I know I have one, it’s pretty amazing. And we can look at the next 30 years of a property. If I’m running a multifamily, I’m going to shorten that appreciation number. If I’m running a single family, then I can look up the appreciation number for the area and plug that in.
And it’s usually a lot more. So just to recap why we love single family, okay, they are easier to find, they are easier to sell, they’re more affordable, so less down. And so because it’s less down, you can get started sooner. You don’t have to just save and save and save. You can actually afford to get in, you know, a single family house. Let’s say in Indianapolis for $150,000 purchase price, you’re just gonna put 20% down and that’s a lot cheaper than saving up for a, you know, three or $400,000 duplex. So these are easier to qualify for and better financing terms. Tenants stay longer, and if you’re buying in a better area, you’re gonna have less turnover and the property appreciates more. So what is better than that? Obviously I love single family, clearly I’m a big single family fan. That is how I build and grow my portfolio.
But what are the cons? Let’s talk about the cons here. Now, if your tenant moves out, you’re a hundred percent vacant, which means a hundred percent of your rental income is gone until the next tenant moves in. Now obviously this can be a serious issue for cashflow management. Now I would argue and say that this claim is almost identical. However, let’s break this down. If we’re comparing a duplex to one single family, then yes, you can say that and say, Hey, well this duplex over here has two tenants, and if one of ’em move out, at least I have one still paying rent. However, let’s compare apples to apples here. If you’re gonna have a duplex, that’s two doors, and then we are gonna have two single families, that’s two doors. So now they’re comparable. So you can say the exact same thing. Hey, if one tenant moves out, then I still have another.
Same thing with the two single families, but one tenant moves out, I have another, which is another reason why we want you to grow your portfolio and add more properties because your risk levels go down and it’s easier to manage because the properties support each other and work like a portfolio. So I don’t necessarily like that argument, but I hear all the time. So I had to mention it. So single family con scaling and pace. So with single family, you are buying one property at a time. You save up, you buy it, you save up, you buy it. Versus multifamily where you can get multiple doors for one loan. So your closing costs would be lower. So you’re gonna save money in that regard because if you’re closing a loan and you’re getting multiple doors, you’re still only paying for one loan closing. Okay, this is a myth that I’m actually gonna mention because I’m constantly dispelling it.
People think that single family homes tend to generate less cash flow than large multi-family properties. That’s why I have it in this category. You would think that that is a con because people think that’s a con and they say it all the time. Now again, this is very general and very broad, but there tends to be higher turnovers in multifamily. And again, when you have higher turnover, that means that it’s less money in your pocket because you are going to have to take your cash flow and cover a vacancy or cover turnover costs. So when you make this claim and say single family homes tend to generate less cash flow, I would argue with you and say, Hey, did you run your numbers correctly on a single family versus a multifamily? Because if I’m running the numbers on a multifamily, depending on the area, depending on what it is, again, there are exceptions to this rule, but generally if I’m looking at a C class multifamily, I’m gonna say you’re gonna have a lot more vacancy and you’re gonna have a lot more turnover costs.
So now let’s get into the pros of multifamily. ’cause I don’t want you to think that I am leaning heavily on single family. Okay, just kidding. I do want you to think that because it is my favorite. However, I’m trying to be as objective as possible. So pros of multifamily, okay? You get more units under one roof so you can leverage the costs. So things like property management, repairs, maintenance, insurance, et cetera. It can be handled in bulk. So you probably save some money and time in the long run. A pro for multifamily, I kind of mentioned this earlier, but it’s scalability. You can get multiple doors for one loan. So the loan costs are lower per closing. So if you closed on two single families, that is two loans versus one loan with multiple doors. So you can save money and build up more doors that way. So those are the pros of multifamily. Now here’s the big disclaimer that I’m going to say. If you see an amazing multifamily and it makes sense, absolutely do it. We love diversification, diversify your portfolio, but again, don’t wait and wait and wait for the perfect multifamily and pass up on other deals. If you see one, it makes sense, grab it, put it in your portfolio. There are plenty of perks with multifamily, like I said, savings costs and loan simplicity. So it would be worth it if the math really makes sense.
Now let’s talk about the cons of multifamily. Now again, I already mentioned this, but I’m gonna mention this because I’m now officially in this section, but one of the biggest downsides to multifamily is the higher turnover rate. So you have to remember that when you have multiple tenants, it also means more lease renewals, more vacancies and more management. So here’s the biggest thing that I have seen over the 10 years that I have been helping clients. I have reviewed and seen a lot of multifamily and a lot of single family. Now you often find multifamily property in areas where they have higher demand for affordable housing, which can be a double-edged sword. These areas might have a higher concentration of riskier tenants, and you’re dealing with the challenges of keeping those tenants happy and keeping them paying. Now, if you’re looking at brand new a class, multi-family properties, then that’s a different story because we tend to see a lot of properties either in C or D class.
Okay? So here’s what I see with multifamily, and again, I’ve been looking at properties and reviewing them for at least 10 years. We tend to see a lot of multifamily, smaller multifamily, bigger multifamily, it doesn’t really matter. We tend to see them in C or D class areas. So C as in Charlie, D as in dog. We tend to see more in those areas because that’s where the demand is and that’s why they were built. People needed more affordable housing, so there was a need and they built them there. Okay? Then we have this kind of gray zone area. I will call this the golden unicorn B class property. Now these are the ones that people generally want the most. There’s fewer of them because there isn’t as much demand for them. So if you were to look at it like this, if you were going to rent a house, and let’s say your budget was $1,500 a month, would you rather rent a duplex or a fourplex or would you rather rent a single family if the price was the same?
Exactly. I know what you’re thinking, you’re nodding your head, I agree. I want the single family, okay? So that’s why there’s less of them in these areas. Now, on the opposite end of that, we do see a need for more housing. In a lot of states like Florida or North Carolina, we tend to see more duplexes, triplexes, fourplexes in these areas because there is a shortage of housing. So we’ve got builders that are going into some really good areas that have high rental demand and they are building these properties, okay, they’re going to cost a little bit more, but you are going to be in a better area and it is new construction. So you’re gonna have a lot of warranties. You’re gonna have lower turnover costs because rental demand is higher in these areas. That is why they’re building these new construction. Now you will have less cash flow, you can cash flow, you should cash flow, but your expectations are going to be different with these, okay?
They’re going to be generally in areas that appreciate a little bit more and they are going to be in areas where there’s really high rental demand. So even though you might not cash flow as much as you want the first couple of years, you know, you always wanna double check your math and make sure that these properties can get some rental increases. So the bottom line is, while these new construction, a class multifamily are lower risk in terms of tenant quality and maintenance, they may not be the best. If you are expecting a lot of cash flow the first couple of years, it’s definitely a long term strategy. But I will say my happiest investors are definitely some of the new construction investors buying multifamily. So again, let’s talk about the cons of multifamily. Multifamily properties generally don’t appreciate as much as single family homes.
So while they should increase in value over time, if you’re buying in good areas, they often lag behind the single family homes, okay? Unless you’re again, doing new construction in a really high desired area where housing is needed. Now, another challenge with good multifamily properties, especially if it’s in a good area and you find that B class golden unicorn, it’s demand. There are going to be a lot of investors competing for them. They are gonna go really, really quick. So it’s easy to get caught in that fomo, and I’ve seen so many people overpay for a property just because they’re like, I need it, I want it. And in the meantime, they’re stepping over some perfectly good single family that actually I think might have a better exit strategy. So don’t get just so hung up on that. You need one. So <laugh>, which is better single family or multifamily?
Well, like I said, it really depends on your investment strategy, your tolerance for risk, and the available funds that you have to use right now. You could wait for to find that golden unicorn, multifamily and waste a lot of years saving up for it, get stuck in analysis paralysis, or you can do it a little bit quicker and a little bit easier and a little bit cheaper by getting involved in single family. And again, this can be a very simple hands-off investment if you are buying the right way and if you know how to work with the right teams to help you do it from 2000 miles away. So there we have it. There is the recap. Obviously you know what’s my favorite? What is your favorite? I would love to hear your feedback. And if you are feeling stuck deciding between the two, don’t worry. You are not alone. I’ve been through both and I can help you figure out which type of investment is right for you. So once again, do not forget to go to www.noradarealestate.com and click that button and you are going to be directed to book a call with somebody here on our team. And again, the link will be in the show notes. We can’t wait to talk with you.
I hope you enjoyed this week’s throwback Thursday episode. If you haven’t already, remember to subscribe so you don’t miss out on a single episode. If you have a question about real estate investing or finance, simply go to passiverealestateinvesting.com and click the Ask Marco button. . I read all of them, I reply to many of them, and sometimes I cover them on the show, and I’m gonna try and do more of that. So, I am going to encourage you to go to passiverealestateinvesting.com and submit your question for Ask Marco. Lastly, help us share the show with other like-minded people that you know who can benefit from it as well. Just visit us on your platform. Most of you are on iTunes and leave us a rating and review. I would greatly appreciate it. I read them all and I will thank you in advance. And that is it for today. Thanks for listening. I will see you on our next episode.
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