San Diego offers great rental investment opportunities. The question you should ask is, “Should you invest in San Diego single-family or multifamily rentals?”
Choosing between investing in San Diego single-family homes or multi-family rentals requires knowing your investment goals. What’s more important: appreciation or cash flow? Let’s explore these and other goals.
The Top Benefit of Single-Family Home Rentals in San Diego
If you chose “appreciation” as your investment goal then single-family homes offer you just that.
It requires holding onto the property for at least 10 years. After that time, if you maintained the home in good condition with necessary upgrades the home’s value on its own should appreciate. On top of that, if you kept high occupancy levels the value of your investment should increase as well.
The Top Benefit of Multi-Family Rentals in San Diego
Cash flow is the biggest benefit that multi-family rentals in San Diego offers. Especially, if you buy buildings already occupied with good tenants expecting to remain for a long time. Otherwise, you must advertise, screen, and interview prospective tenants at the outset to fill the vacancies.
Other Considerations Affecting Should You Invest in San Diego Single-Family or Multifamily Rentals?
Vacancy Risk in San Diego
Hopefully, by the time you buy a home or a multifamily building the pandemic ends and life in San Diego County returns to normal. Then, you face the risk of tenants moving out, vacancies lingering, and your only income comes from the remaining tenants.
A disadvantage of investing in a single-family home is if the tenant moves out your only income dries until you find another tenant. However, if you invest in a duplex or a fourplex or multifamily building you won’t lose all your income if one tenant moves out.
Thus, vacancy risk lessens with multi-family investments.
Finding Qualified San Diego Long-Term Tenants
Most qualified long-term tenants prefer single-family homes. Read more about this in our post titled, “Top Rental Features Attract Good Tenants”.
The reasons why they are “qualified” tenants:
- They seek a home with privacy, a garage, yard, and located in a good school district;
- As a result, they pay higher rents for a good neighborhood and amenities that homes provide like a pool and extra space; and
- They take better care of the home and maintain it.
Advantages of San Diego Single Family Homes Investments
Single-family home costs less than a multi-family building. As a result, the down payment is lower with fewer maintenance costs. Utility costs are cheaper and easier to control. Insurance is cheaper for a home than a building with multiple units. Likewise, unless you have at least 20% equity, you must carry mortgage insurance for a multiplex.
Easier to Finance
A San Diego single-family home is a lot easier to finance than a multiple-family building. The interest rates for financing a home are lower than a multiple-unit building.
Common areas in buildings require more maintenance. Like the entry, elevators, stairs, hallways, and outdoor amenities. On the other hand, a home becomes the responsibility of the tenant to clean and maintain the yard. Quality tenants take pride in their home resulting in less maintenance, repairs, and wear and tear.
Most San Diego homes have a driveway or a garage. On the other hand, multi-family buildings have a parking area requiring your maintenance and security.
Lower Utility Costs
Landlords must pay for common areas’ electricity, trash, and water. It’s worst if the individual units are not metered. A single-family home requires the tenant to pay all utilities.
San Diego single-family homes attract better tenants. They treat the rental as their home and take care of it. When a problem occurs, they communicate with their landlords faster.
Lower Vacancy and Higher Rents
Renters pay more for a single-family home than an apartment. They enjoy autonomy and privacy in a home resulting in longer stays. Oppositely, multi-family tenants move more often due to issues with neighbors, excess noises, and parking problems.
A San Diego home is easier to sell than a multi-family building. Also, homes based on supply and demand appreciate more than buildings. Thus, a better exit strategy exists for single-family home investors.
Need Help with Finding a San Diego Single-Family Home Rental to Purchase?
SoCal Lifestyle Realty offers experienced Realtors in San Diego County to help you find the best single-family home rentals. For example, read our informative blog post: House Hunting San Diego Questions 2021.
Contact SoCal Lifestyle Realty now to see what homes meet your investment goals.
Advantages of San Diego Multi-Family Buildings Investments
Bigger Cash Flow
A single-family San Diego home only produces one income. Contrary, multiple-family units produce several incomes. One vacancy doesn’t hurt your income as does renting a single-family home. Living in one of the units while renting the others lowers your interest rates in buildings with 2 to 4 units.
Simpler Property Management
You only need to manage one building with multiple units. This results in paying for repairing one roof, one pest control bill, and maintaining one yard. This makes managing your investment simpler. It takes less time to manage one building than several. One visit to meet multiple tenants.
More Units on Less Land
In the rental properties industry, the underlying land becomes a “non-performing asset” as you don’t rent the land. Yet, renting more units on your land means higher income. This is known as “maximizing your performing asset”.
More Potential Tenants
A multi-family unit rents for much less than a home. This means more potential tenants who can afford to rent your units. This minimizes vacancy rates. Recent studies show those baby boomers as they age move into complexes rather than homes. Also, most Millenials tend to rent.
Greater Control Over Value
The value of multiple family buildings is determined by income. Contrarily, a single-family home rental value is determined by comparable rentals and sales. Thus, you control value by maintaining and upgrading a building and raising rents according to the increased value of your building.
Multiple-family buildings are usually found in high-density urban settings. This means they often are close to main streets, highways, restaurants, and shops. San Diego communities with these amenities include Ocean Beach, Pacific Beach, and Point Loma.
Bonus: Advantages of 2 to 4 Unit Buildings vs. 5 or More Units
Loans are easier and cheaper to get for multi-family buildings with 2 to 4 units. That’s because lenders consider them “residential”. On the other hand, a building with 5 or more units is a “commercial” one requiring harder to get loans with high-interest rates.
Should You Invest in San Diego Single-Family or Multifamily Rentals? – Conclusion
We hope you got an answer to the question, “Should you invest in San Diego single-family or multifamily rentals?”
As you read above, it depends on your investment goals. If you want appreciation, single-family homes in San Diego offer your this. Or, if you want cash flow, choose multi-family San Diego buildings.
Knowing the benefits of each type of investment also helps.
The benefits for San Diego single-family homes rentals include:
- Long-term tenants prefer single-family homes;
- Affordability as it costs less to buy a home than a building;
- Easier to finance a home;
- Less Maintenance for a home;
- Parking convenience with a home;
- Lower Utility Costs as a home doesn’t have common areas;
- Quality Tenants as home renters stay longer and take better care;
- Lower Vacancy and Higher Rents with home renters; and
- Resale as homes sell faster at higher appreciation than buildings.
The benefits for San Diego multi-family rentals include:
- Bigger Cash Flow every month than a home;
- Simpler Property Management as one building easier to manage than several homes;
- More Units on Less Land with multi-family buildings;
- More Potential Tenants as multi-family rentals have larger tenants’ pool;
- Greater Control Over Value as you make improvements to raise rents; and
- Better Location as multi-family buildings found in convenient locations.
Bonus: Advantages of 2 to 4 Unit Buildings vs. 5 or More Units include easier loans at lower interest rates for buildings with 2 to 4 units qualifying for residential loans than expensive commercial loans.
When You Invest in San Diego Single-Family or Multifamily Rentals
Consider hiring an experienced property management company in the greater San Diego area.
WeLease provides all the property management services you need whether you rent single-family homes or multi-family units in San Diego County.
Contact us with assistance for deciding on your rental investment goals, finding good rental properties, and taking all the stress of land-lording off your hands to enjoy your investment profits.
Steven Rich, MBA – Guest Blogger
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