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Princess Mary Restaurant

On West Bay in the inner harbour, at 453 Head St in Esquimalt

Cheri Crause

 

Royal LePage

Coast Capital Realty 

1933 Oak Bay, Victoria

Andy Vickers

250-477-7555

Mortgage Broker

Harbour View Mortgages

R. MIKE MULLIN, CGA

"Your One Stop

Commercial Specialist

In Victoria and the Mid Island"

Toll Free 1-855-650-6560

Commercial & Investment

Real Estate Specialist with

For the purposes of this article, we'll consider either investment (SFH or MFH) to be a standard long-term buy and hold rental property (that means, not a reno, not a flip, not a Lease to Own, not wholesaling, short-selling, day-trading or any other real estate strategy out there!).

Now typically this discussion will take you down the road of buying Apartment Buildings versus Single Family Homes ... but I am going to do this a little differently today. Sticking with where my experience has been which is in owning rental property varying in size from one unit to six units.

So for this article, a SFH is defined as a property (can be a detached house, condo, townhouse, rowhouse, etc.) that has only 1 unit and thus only 1 family living in it. A MFH, for the purposes of this article, is defined as any property that has more than 1 unit/family living in it. Thus, it could be a house with a basement suite (2 units), a duplex (2 units), a triplex (3 units), etc.

• Depending on the city/area, typically appreciate faster than MFH
• Generally a broader range of potential buyers (when it's time to sell)
• Often worth more on a per unit basis (but this can be a disadvantage too as you pay more for it)
• More liquid - SFH Can often sell quicker, even in a down market again due to a broader range of potential buyers
• Only have to "deal" with 1 tenant, not many
• Tenants don't argue with other tenants because they are the only ones living there! There will be no issues around which tenant gets to use the bbq or front patio or even who puts out the garbage
• Easier to get the tenants to pay for all of the utility bills again because they are the only ones using them
• Some argue that you get a better "quality" of tenant in a SFH than in a multi-family, however, I do not necessarily agree with this. Will discuss why later.
• Financing your investment property is often simpler and easier to get.

• The biggest disadvantage as an Investor is they rarely cashflow as well as a multi-family home
• Can be "riskier" as there is only 1 tenant to pay the rent. If they vacate (and you can't immediately place a new tenant), who pays the mortgage, bills, utilities, etc? You do! The MFH has more than 1 tenant so they at least continue to collect some rent to offset their costs.
• Tend to have a smaller pool of renters because SFH tend to have higher rents than homes with multi-units. Thus, it may be more difficult to place a good tenant in a SFH because they tend to be more expensive.
• No economies of scale with a SFH. If you or your PM are managing it, there is just the 1 house/unit/tenant. Most PM's will offer discounts on a per unit basis if it's a MFH, these discounts won't apply on SFH. The same goes for doing repairs and maintenance, you may get a cheaper per unit rate if you are replacing all the windows or locks on a MFH than on, for example 3 SFH.
• SFH are often slightly less conveniently located than MFH which again may hurt your chances to find tenants. Thus, SFH are usually slightly further away from main roads and public transportation, retail shops, offices, and other places that your tenant may want to be close to. This is because MFH are generally built in higher density areas. Higher density areas are built around shopping, stores, offices, etc.

Contrast these with the advantages and disadvantages of Multi-Family Homes as an Investment:

• Potential to cashflow better because there are many more units purchased for a slightly lower price per unit - typically.
• More than 1 rent to help cover your operating costs - if one unit is vacant there are other units bringing in revenue that will help you out.
• Often a broader range of possible tenants to choose from as the per unit rental cost is usually less than a SFH
• If 1 unit becomes vacant, you can work on it (paint, put in new floors, etc.) but still be collecting rent from your other units/tenants
• Economies of scale: for instance, your PM will likely charge you less (as a percentage of the rent) on a 2 or 3 or more MFH than he/she will on a SFH. Furthermore, your utility costs will likely not be 3 times the amount (if it's a 3 unit MFH) even though there are 3 tenants living there.
• On a per unit basis are less expensive than SFH
• Generally, your rent to price ratio is higher on MFH than on SFH (this can often equate to more cashflow)

Disadvantages of Buying Multi-Family Homes