Single-family real estate refers to a detached residential property designed for a single family or household. There are plenty of reasons why investors may opt for single-family homes. These properties are generally more liquid and less expensive than large multifamily properties, making them easier to acquire and manage.
With such a low barrier to entry, investors need only a modest amount of capital to participate in this investment vehicle. [1]
Prospective residents for single-family properties are also described as “sticky,” meaning they are likelier to stick with a rental property for years. In contrast, residents in multifamily properties tend to come and go.
Still, many advantages regarding economies of scale, vacancies, cash flow consistency, diversification, third-party management, and demand dynamics often give multifamily the edge over single-family real estate investing.
This article will lay out the differences between multi- and single-family assets and discuss the impacts of each differentiating factor.
ECONOMIES OF SCALE/SCALABILITY
Economies of scale can significantly impact real estate investments. Managing 50 units in one building is much easier with multifamily real estate than managing 50 scattered-site single-family residences. By sharing costs (operational, acquisition, etc.) across multiple units, multifamily operators can benefit from economies of scale, whereas, using the integer 50 above, single-family operators would likely have to multiply their transactions by a factor of 50 to achieve the same scale.
- Multifamily: 1 building = 50 units
- Single-family: 1 building = 1 unit
VACANCY RISK
Multifamily properties are generally less risky for vacancies than single-family properties. If a property has 50 units and 45 are filled, the property is still in a stable position. Meanwhile, with single-family residences, the income generated will go to zero if the resident leaves.
CASH FLOW CONSISTENCY & DIVERSIFICATION
Diversification in investment real estate comprises spreading investments across various property types, locations, and markets. This strategy aims to reduce the risk of losses by ensuring that no single investment or asset is excessively dependent. Managing several units in one building is much easier than managing several scattered-site residences.
Earlier, we mentioned that multifamily can offer more consistent cash flow. This is because in multifamily, you have considerable latitude in paying the bills if a few residents are delinquent. With single-family, there is zero rent if the resident does not pay their rent. Finally, cash flow is typically lower with single-family residences due to there being a single source of income. [2]
OUTSOURCING MANAGEMENT
Because multifamily properties cash flow better, they are more likely to be able to outsource management. Outsourced property managers often take between 8% and 12% (or more) of the monthly rent of a property as their fee with single-family residences, which can diminish overall returns. Click here to continue reading about multifamily strategies to mitigate outsourcing management, such as vertical integration.
DEMAND FOR AMENITIES
Many residents want to take advantage of items or services that offer convenience, comfort, and enjoyment. Multifamily communities typically offer dog parks, pet spas, resort-style pools, communal grills, clubhouses, valet trash service, and more. Standalone single-family rentals often do not have amenities.
WORK WITH BAM CAPITAL FOR MULTIFAMILY PRIVATE PLACEMENT
BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.
Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.
Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.
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SOURCES:
[1]: BAM Capital. (2023). “Why single-family investors are diving into apartment complex investing.” https://bamcapital.com/why-single-family-investors-are-diving-into-apartment-complex-investing/
[2]: Baselane. (2024). “Multifamily vs. Single-Family Investing: Which is Better?” https://www.baselane.com/resources/multifamily-vs-single-family-investing/
