Multi-Family vs Single Family Home Investing: Is Grant Cardone's Real Estate Strategy Right For You?

Real estate investing is a tried-and-true method of building substantial wealth while diversifying your investment portfolio. Holding real estate in addition to stocks, bonds, and retirement funds can mitigate your overall risk and help safeguard your financial future.

However, real estate investing is rarely a one-size-fits-all strategy. There are a vast number of ways to get started, and choosing one at the beginning can be the hardest part of the process.

Two of the most popular ways to get started in real estate investing are through single family homes and multi-family properties. Continue reading to find out the pros and cons of multi-family vs single family home investing and how to decide which one is right for you.

Understanding Multi-Family Investing

Multi-family home investing involves purchasing residential properties that consist of multiple separate living units within a single building or complex. These units range from duplexes and triplexes to larger apartment complexes with dozens of units. 

Here are some key points to consider when it comes to multi-family home investing:

• Rental Income: The main source of revenue in multi-family investing is the rental income collected from tenants occupying the various units. Having multiple units in a single property allows for a diversified income stream, which can be more stable compared to other real estate investments.
• Property Management: Depending on the size of the property, professional property management might be necessary to handle tenant issues, maintenance, and day-to-day operations. Effective management is crucial for maximizing returns and minimizing vacancies.
• Cash Flow: Positive cash flow is a key goal in multi-family investing. After deducting expenses such as mortgage payments, property management fees, maintenance, and taxes, the goal is to have a surplus of income remaining.
• Scaling Your Portfolio: Building a portfolio is expedited when focusing on multi-family properties, as their acquisition process closely resembles that of single-family homes. However, the task of managing these assets can become challenging if you own less than three rental units.

Understanding Single Family Home Investing

Single family home investing involves purchasing residential properties that are designed for a single family to occupy. These properties are typically standalone houses and do not share walls or common spaces with other units.

Investing in single family homes can be approached in various ways, each with its own benefits and challenges. Here are a few considerations when it comes to single family investing:

• Long-Term Appreciation: Investors may choose to buy single family homes in areas with strong potential for long-term property value appreciation. While rental income is still a consideration, the primary goal is to benefit from the increase in property values over time.
• Portfolio Building: Investors can accumulate a portfolio of single family homes and diversify their investments across different properties and locations. This can help spread risk and potentially increase overall returns.
• Vacancy Issues: The positive cash flow from a single-family home can be wiped out when turnover occurs and vacancy rates increase. This is why preventing extended periods of vacancy is crucial for single family investors to retain their cash flow. 

One common pitfall from new investors is focusing on cutting costs while neglecting the potential impact of vacancy.

Choosing Multi-Family vs Single Family Home Investing

Deciding whether to invest in single-family homes or multi-family properties depends on various factors, including your financial goals, risk tolerance, market conditions, and personal preferences. 

Keep reading for five ways to determine if you should invest in multi-family or single family homes as a new real estate investor. 

Financial Goals: When deciding between investing in single-family homes or multi-family properties, it's crucial to consider your long-term financial goals. Your objectives will play a significant role in determining the investment choice that’s right for you. 

Expenses and Maintenance: Another critical aspect is the expenses and maintenance associated with each property type. Multi-family properties often benefit from economies of scale, as maintenance and management costs are shared among several units. 

On the other hand, single-family homes might require slightly higher maintenance expenses per unit. However, the impact of vacancies is contained within a single unit and has a larger effect on your overall portfolio. 

Consider Property Types: While real estate gurus like Grant Cardone might show a preference for class A large apartment complexes, new investors should be aware that this doesn't diminish the value of single-family homes. 

The value of apartment buildings is often linked to their rental income, as opposed to single-family homes whose equity appreciates based on market trends. 

In markets like California, opting for single-family homes could be a more logical choice due to their equity appreciating at a faster rate compared to rental increases.

Risk Exposure: As we mentioned previously, risk diversification is another important consideration. Multi-family properties spread risk across multiple units, mitigating the consequences of vacancies on overall income. 

It’s usually easier to replace one tenant in a single family home rather than multiple tenants when dealing with multi-family properties.

Property Management: In addition to financial considerations, property management plays a role in choosing between multi-family vs single family investing. Multi-family properties often require more time and effort due to the increased number of units, tenants, and maintenance demands. 

Single family homes can often be managed by a single landlord and may not require the assistance of a property management company.

The Bottom Line

When it comes to choosing between multi-family and single family home investing, it’s important to consider your personal financial situation and what you’re looking for in an investment.

Single family investing tends to be more appealing for investors who want stable rental income and property appreciation, while multi-family investing is better for investors with more upfront capital who are looking for higher returns.

Additionally, multi-family properties come with higher maintenance and property management expenses, which can eat into your profits.

Just like when Robert Kiyosaki said "Buy four green houses before you buy a red hotel", in this case, you can say "Buy four houses before you buy an apartment”, as single family investing is often a safe bet for new real estate investors.