A Nation of Renters: Multi and Single Family Housing

One indicator of a resurging housing market is the number of new starts, or new housing construction projects, and permits applied for in a particular market. Traditionally, this has meant an upswing in home ownership, since most new housing construction is centered on single-family homes. But according to recent statistics published by Forbes online, current trends in housing construction reveal a booming business in the construction of multiplex, or multi family housing — confirming that currently it’s a renter’s, rather than a buyer’s, market.

While this is good news for investors seeking to make a

profit in income property, it also points up factors these investors may need to consider when looking for properties to purchase. Both single family and multiple-family properties have the potential to yield a return, but these two kinds of properties offer different challenges and benefits.

Single family homes, the kind most often hitting the foreclosure market after the real estate collapse, are just that: a single house on a tract of land, intended as a dwelling for only one family. Although other kinds of arrangements can exist on the property – a second bedroom and adjacent bath rented out to another tenant, or a garage converted into a dwelling, for example – the property is generally zoned only for single family occupancy.

Since the foreclosure market is still busy with cases only now working their way through the courts, it’s relatively easy to purchase single-family homes at low interest rates to create the kind of diverse portfolio recommended by Jason Hartman. These properties are relatively easy to maintain over time. But a long-term vacancy can put a dent in your investment cash flow, and changes in the market can make putting all your investment eggs in one kind of basket particularly risky.

Multifamily housing, or multiplexes, refer to a variety of structures that house more than one unit, or family. These range from a house with a basement or second-floor suite to apartment houses with large numbers of tenants. But the true “apartment complex” comes under the heading of commercial real estate, and is a different kind of investment than smaller multiplexes made up of two, three or four units. For most lenders, a multiplex property of up to four units is treated like a single family home for mortgage purposes while five or more units will be considered commercial property.

These kinds of properties may not sell as easily as single-family homes, though, and they may create more demands in terms of upkeep and maintenance. Tenant disputes are more likely, too, with greater turnover since tenants are more transient. But these properties allow investors to diversify holdings and spread the risk fairly rapidly, and may yield a

greater long-term return.

Single family home or multiplex? Each has its merits and drawbacks, determined largely by the local market they’re in. Investors who can manage it may want to purchase both kinds of properties as part of an overall strategy based on Jason Hartman’s advice to diversifying holdings for lower risk and greater return.

The American Monetary Association Team

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