If you’re not already investing in both multifamily and single-family rental homes, this is a great time to diversify your portfolio.
Take a look at what you currently own. When your entire investment portfolio is made up of multifamily units like duplexes and three or four–unit buildings, maybe it’s time to buy a single-family home. Or, if you only have single-family homes, it might be time to think about a small apartment building. You can even buy condo units in an association neighborhood.
Diversifying in this way allows you to protect yourself from risk. Having different property types in your portfolio allows you more flexibility and fewer losses when the economy shifts and tenant trends change. Balancing your portfolio with a mix of property types is essential when you’re putting together a profitable, long-term investment plan.
Here’s how your process might look different based on whether you own single-family homes or multifamily properties or a blend of both.
Investing in Single-Family Homes
A single-family home is always a great investment option because they are always in demand among highly qualified tenants.
One of the best reasons to own single-family rental properties is that you can expect your tenants to treat the home as if it’s their own. They’ll pay for minor maintenance issues and take care of all the utilities. They’ll also want to keep up with the rest of the neighborhood, so you can expect the curb appeal to be well-maintained and the house to look attractive.
You might have to pay for a landscaper or a gardener, but those costs can be rolled into the rent. If your home is in an HOA neighborhood, there might also be an HOA fee and some extra rules and regulations for you and your tenant to follow. Be aware of those.
Here are some of the other benefits to investing in single-family homes:
- You’re likely to attract high quality tenants with a well-maintained single-family home in a good location. They’ll be looking for stability, which means they will probably stay in place longer, reducing your vacancy and turnover costs. These are residents who are often interested in owning a home. They might someday, but right now they’re renting because they like the freedom and the low-maintenance lifestyle renting affords. It’s also a crazy market for a first-time homebuyer to navigate. Single-family homes appeal to tenants who want good school districts and proximity to commuter routes and shopping.
- Single-family rental properties offer great appreciation potential. Values are always increasing at a rate that outpaces multifamily homes. The cost of a single-family investment home is extremely reasonable in Visalia, especially compared to other markets throughout the country. You’ll earn some great ROI on a single-family investment.
- You can also count on high rental prices with single-family investment properties. Tenants are willing to pay more for the space and privacy a single-family home affords.
There are some unique challenges that come with single-family homes that you’ll need to prepare for. Maintenance costs, for example, may be higher. Even if your property is new or in good shape, you’ll probably spend a little more keeping it in excellent condition.
There are also higher costs for landscaping, pest control, and preventative maintenance services. You may have to cover the HOA fees if they apply to your property. Some of these things you can include in the rental amount. Others, you will have to pay yourself.
Investing in Multifamily Properties
Multi-family properties in Visalia and the surrounding areas are likely to be small apartment buildings, units inside of converted residential buildings, or even duplexes, triplexes, and fourplexes.
The main benefit to this type of investment is that you’re protecting yourself against the risk of vacancy. You’ll have more than one tenant in place, even if you have a duplex. That means you have more than one income stream. When a tenant moves out and you have a vacancy, you will still have rent coming in from other sources.
There’s also the benefit of paying for services with your stronger buying power. If you decide you want to install new appliances in all your units, for example, you can get a deep discount when you’re buying 4 or 5 washing machines versus a single washing machine.
When you need maintenance or landscaping services, you can contract with a vendor who is likely to provide a discount because of the volume of work you need. You’ll save time and money maintaining a single building with two or three units.
There may be more management needed when it comes to your tenants. In multifamily buildings, tenants are more than neighbors; they’re often sharing walls and communal space. Conflicts and disputes can arise between your tenants more frequently. There might be complaints about noise or parking or trash or pets. This can take some extra time and lead to frustration for you as the landlord.
Why Your Investment Portfolio Needs both Property Types
If you have the ability to diversify your investment portfolio and include both single-family homes and multifamily units, you should absolutely do it. You’ll have a stronger portfolio that doesn’t depend on one type of tenant or one part of the rental market.
With both asset types, you can also expect stronger cash flow (multifamily homes) and bigger gains when it comes to long term ROI (single-family homes). We can even help you with some commercial properties if you decide to really diversify what you own. It requires a different management style and a new approach to finding tenants, improving spaces, and providing the best customer service. We have experience with commercial spaces, however, and we’d be happy to talk about those possibilities as well.
A lot of residential investment property owners will stick with one property type. We understand the inclination, but encourage you to think outside the box. A portfolio with 75 percent single-family homes and 25 percent multifamily properties doesn’t require a huge shift. But, it can make some big ripples in what you own and how you leverage your investments.
We love working with investors to build a stronger portfolio. If you have any questions about how to make this work for you, contact us at The Equity Group.