When you are a first-time real estate investor, the question of if you should purchase a Multi-Family Residence (MFR) or a Single Family Residence (SFR) San Diego rental property can be a challenging one to answer. Similar to most things in life, there are positive and negative aspects of each option. It is important that you have a good understanding of which option meets your needs after learning more about the reasons to invest. When considering real estate investing, both MFR and SFR can be a good investment. Once you plan to commit to a long-term goal, you will achieve progress.
Reasons to Select a Multi-Family Residence
A multi-family residence investment may appear to generate more cash initially. This is because more units being available to rent results to more money, right? But that can differ when considering your long-term goals for your San Diego rental property. Here are four things to consider when planning to invest in an MFR.
Property Costs
The entire cost of an MFR will exceed an SFR cost each time. In terms of cost per unit, however, MFR’s cost is much lower. Moreover, your expenses to maintain and manage that unit will be also less on a per unit basis. Take for example that you invest in 2 SFRs and 1 MFR with 2 units. The MFR requires lower costs for repair and maintenance. For plumbing repairs in an MFR, you can do one large job on both units. However, in the case of owning 2 SFRs’, you solve two plumbing jobs separately causing you to pay a higher cost. Also, your state may require an onsite employee if the MFR is beyond a certain number of units.
Financing
When considering investing in property there are more things to consider than just your credit because often banks will still restrict the number of mortgages you can manage—usually up to 10. But if you handle 10 MFRs with 5 units each, then you can claim that 50 units are yours. Not only that, you get to benefit from the cash flow paid by those tenants.
Vacancy Expenses
If you own an SFR that remains vacant, that means there are no tenants to pay the rent and results in a 100% vacancy. On the other hand, with a partially rented MFR, you can compensate some, if not all, of the cost from the rent of the occupied units.
Cash Flow
Although mentioned previously, this topic needs to be discussed alone. Oftentimes, with MFRs, you’ll immediately earn cash, especially if units are new. As MFRs age over time, their appearance usually does not age well. Most of that initial cash flow will be used for maintenance and upkeep. So keep in mind about that aspect in selecting which San Diego rental property type you wish to have.
Why Choose a Single Family Residence?
After learning about the advantages of an MFR, why would others continue to pursue an SFR investment? It depends mostly on your goals. If your goal is to invest in a property and see profitable returns on your investment in the long term, then SFRs may be better suited for you. Here are five reasons to select an SFR.
Location
An SFR is oftentimes found in a better area than an MFR. The location is usually a peaceful neighborhood, different from where apartments are situated. Nice property locations most likely to result in fewer vacancy periods. With that, location remains to be a significant factor to consider in real estate.
Tenant Quality
A lot of property management companies state that SFR tenants are usually more concerned about their property compared to MFR tenants. The reason is that they consider SFRs as their own home instead of treating it as a mere place to live. Also, SFR tenants have more established long-term residential goals.
Tenant Turnover
Tenant turnover is one of the largest costs that property management companies will experience. That’s why SFRs are a better option for a San Diego rental property. When a tenant rents longer than means there is no need to be constantly advertising, showing, and releasing your property.
Appreciation
SFRs increase their value as they get older. So opportunities to gain income from property appreciation is rewarding enough.
Planning Your Property
When it comes to your long-term goals in SFRs, you can sell the property and earn a profit once your San Diego rental property is completely paid. You can also choose a 1031 exchange. If you handle it right, you can generate more significant income at the end of your investment. That income can even pay for retirement or other investments.
So, what type of rental is your perfect fit? That relies upon your goals and current situation. Regardless of which type of San Diego rental property type you select, a property management company can be very helpful in guiding you throughout the process. Would you like to learn more about Realevate Specialists? Please contact us online or call our Mission Valley office at 858-997-2100 or our Temecula office at 951-461-0100 for more information.
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