If you’re interested in becoming a landlord, one of the first decisions to make is what type of investment property you want to own and manage.
Some real estate investors in Seattle choose to purchase multiplexes or apartment buildings while others go the route of acquiring one or more single-family homes to rent out. Both options have their pros and cons. It simply depends on how much you want to spend upfront on the investment, the level of risk you’re willing to take and your end goals as a landlord. Either way, you'll want to have any and all of your legal and rental agreement documents ready to go.
In terms of housing, a multiplex is any structure that consists of two or more rentable units. These properties are also referred to as “multi-family homes.”
You will likely have to make a larger investment to purchase a multiplex in the Seattle area, both in terms of the down payment and monthly mortgage payment. However, if you’re financing a loan to make the acquisition, you get the benefit of acquiring multiple units that can be rented and only having to deal with one mortgage.
The risk of vacancy is also mitigated with a multiplex. For example, if your single-family home sits vacant for an extended period of time, you are making no profit on that property, which can be detrimental. When you’re managing a multiplex, it’s unlikely that all four or 12 units will sit empty at one time. Even if one or two units are vacant, you are should have at least some rental income at all times.
On the flip side, you also assume the responsibility of managing numerous tenants as opposed to just one. That involves marketing vacancies, vetting prospective tenants, responding to complaints and maintenance requests, collecting rent and other fees, and handling other tasks imperative to the smooth and successful running of your rental property. If you’re looking to expand your assets and invest in numerous multiplexes for the purpose of growth, you should consider partnering with a property management company to help shoulder the daily responsibilities associated with being a landlord.
Single-family homes are easier to manage than a multiplex, although that can change once you start acquiring several single-family homes. Then, you’re in charge of paying off several properties, not to mention the upkeep that now must take place at separate locations.
Single-family homes tend to have better long-term capital appreciation than multiplexes, and you can increase your equity more quickly. Additionally, there is a larger market for this type of residential property, which is a bonus if you decide to sell in the near future. You shouldn’t struggle to find a buyer, whereas the process of finding someone to purchase your multiplex may take longer or be more challenging.
While owning a single-family home, it becomes imperative that you minimize vacancy and find qualified tenants who will protect your investment. If you want to try to increase your income from this real estate investment, however, you can explore turning the residence into a multifamily home, or duplex. Before doing so, you’ll need to check with the Seattle Department of Construction & Inspections about changing the zoning on the property. In general, you can charge a higher rental rate for a single-family home than for a single unit in a larger complex.
In most cases, you can also expect to pay less on utilities with single-family homes, as tenants tend to shoulder the cost of all utilities, including trash and water. At multiplexes, you may be expected to cover certain utilities for the entire property, especially if units aren’t individually metered. Additionally, parking is a more straightforward issue when it comes to single-family properties. Lack of adequate parking or only having street parking at a multiplex can be unattractive to tenants.
There is plenty to evaluate when deciding between investing in multifamily homes or investing in single-family homes. While some benefits and challenges are common, regardless of your market, others may not be prevalent in your particular neighborhood. For example, Burien is one of the fastest-growing rental markets in the area, and all types of units—both single-family and multi-family—are benefitting from that growth. You are unlikely to struggle to find quality tenants, or even a buyer, in the event you have to sell the property sooner than anticipated.
Ultimately, selecting the right real estate investment for your portfolio depends on your goals, both personal and professional. If you find a single-family home that could be perfect for your own family in the future, it makes sense to purchase it now and rent it out until you’re ready to move in. On the other hand, if your goal is to aggressively add cash flow and you feel comfortable assuming the higher rental risk, consider investing in multiplexes.
Regardless of what type of residential real estate investments you pursue, managing your newly acquired property is a major responsibility. To maximize the return on your investment, consider hiring a company that is not only familiar with the Seattle rental market but also experienced with managing both single- and multi-family housing. Our team at Powell Property Management offers a wide range of services that can be tailored to your specific needs so you feel supported as a landlord and confident about the protection of your investment, whatever it is.
You may also like: How to Keep Your Apartment Occupancy Rate Under 5% in Burien