Los Angeles Single-Family vs. Multi-Family Property Investments
Investors deciding between a single-family home in Los Angeles or a multi-family property have much to consider. Each rental property comes with its own advantages and challenges, and the decision really comes down to whether you’re hoping to maximize your cash flow right away or whether you’re settling in for the long term and waiting for values to appreciate over time.
Our advice, of course, is to diversify your real estate portfolio whenever possible. If you can, include a mix of single-family homes and multi-family properties, especially when you’re looking for acquisitions in a market as diverse as Los Angeles. When you go after both types of properties, you reduce the risk associated with investing and you keep your options open in terms of how to finance, manage, and move forward with these investment properties.
The best investments often depend on the market, and Los Angeles is unique.
Los Angeles Demand for Single-Family Homes
Things have been a bit chaotic since the pandemic took hold, especially in the rental markets, but one thing has been surprising and encouraging: demand for single-family rental homes has gone up considerably. This makes sense. People are adjusting to work-from-home and school-from-home lifestyles, and the extra space that a single-family home can provide is attractive. Investors who buy single-family homes will see a stable tenant pool and an ongoing demand.
Another benefit to buying single-family versus multi-family homes is that tenants tend to be more stable. You won’t have the higher turnover that’s often found with multi-family properties, and that’s something to consider if you don’t like vacancies or the uncertainty of new residents coming and going every year.
From a financial standpoint, single-family homes are unlikely to deliver a lot of cash flow right out of the gate. You’ll need to be prepared for the long game, which will absolutely pay off later. Single-family homes in Los Angeles will appreciate in value and deliver high returns when you’re ready to sell in 10 years or more.
Los Angeles Multi-Family Homes Mitigate Risk
The Los Angeles rental market is fairly competitive and one way to emerge as a successful investor is with a multi-family investment that’s well-maintained and attractive to high quality tenants. There’s less of a vacancy risk with these types of properties, and that’s an excellent argument in favor of a portfolio full of units in a single building. Even buying an entire apartment building can generate ongoing income right away.
The risk management is simple: when you invest in one single residence, all of your income relies on the tenants in that one property. But when you have a duplex, you have two income streams. If one tenant moves out, you’re still earning something. If you have a six-unit building or a 10-unit building, there’s even less of a risk that you’ll be hurt financially when a tenant moves out.
There’s also the benefit of lower per-unit maintenance and management costs. Typically, single-family investments are going to cost more to maintain. When you have a building or a selection of multi-family units, you can have all the preventative work and the service checks and the inspections done at the same time. Los Angeles property management costs will also come down per property when you have multi-family units versus single-family homes.
Deciding between single-family investments and multi-family investments is a nice problem to have. Talk to us about your ideal cap rate and what kind of cash you’re hoping to invest and earn. We’ll help you decide where your best chance of success is in the Los Angeles rental market. Contact our team at MGMT Group, Inc.