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070: Are Single Family, Multifamily, or Commercial Properties the Best Investment?

I have always bought single family rentals, except for one duplex I bought last year. I sold that duplex this year for a nice profit, but single family homes have been very good to me. I am not going to say single family homes are always the best investment, because I think different investments work better for different people in different markets. I stopped buying rentals in Colorado because our prices have increased so much in the last few years. Many people have asked me if I have thought about investing in multifamily housing, since prices are so high.

I have thought about multifamily, but the prices for that segment is extremely high in Colorado as well. I have also thought about commercial real estate investments the last couple of years for personal reasons and investment reasons. I don’t like many commercial investments, because the market is so cyclical and commercial properties can be very complicated. However, I do have certain commercial niches I am interested in, and may invest in shortly. On episode number 70 of the InvestFourMore Real Estate Podcast, I talk about my investment choices, why I make them, and what my future plans are.

Why do I like single family homes over multifamily properties?

I invest in single family homes for the most part for a number of reasons:

  • There are more single family homes in my area, which makes getting an awesome deal easier.
  • Single family homes are easier to manage, because the tenants stay longer, take better care of the homes, and pay all the utilities.
  • Single family homes are easier to sell because you can sell to an owner occupant or an investor, where multifamily homes can only be sold to investors.
  • Single family homes provide more diversification. 20 single family homes are less risky than 20 units in one multifamily building in my opinion.

What are the advantages of multifamily investment properties?

Just because I like single homes, does not mean they are the best investment for everyone. The rents on single family homes versus multifamily homes can vary greatly in different markets. The cap rate in my area for multifamily homes is about 5 percent, where the cap rate on multifamily in other markets could be 10 percent. You might make more money on multifamily in some markets than you would make on single family homes. There are other advantages as well:

  • You can house hack with multifamily properties as well, which can make buying rentals easier.
  • The repairs and maintenance may be less on multifamily because more units are under one roof.
  • You can scale up faster with multifamily properties if you are looking to buy large complexes.
  • Some areas will have more multifamily properties than single family homes, which makes finding a great deal on the properties easier.

Why am I thinking about buying commercial properties?

I have 14 rentals now, after selling two this previous summer. I want to keep buying rentals, but the market in Colorado is not conducive to single family or multifamily rentals. I have looked at Florida and other markets to buy in, which I will do eventually. I have also looked at buying commercial properties that would benefit me with storage space and rental units as well.

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