Diversification can strengthen your real estate investment portfolio, and limit the risk that it carries.
If you’re not already renting out both multi-family properties and single-family homes, you might want to consider it. The market is always changing, and when you have the type of property that appeals to a large part of the tenant population, you don’t have to worry much about vacancy, turnovers, and lower-than-market rental values.
As San Diego property managers, we lease, manage, and maintain both multi-family units and buildings and single-family homes. Each type of property is a little different and requires specific strategies.
If you’re trying to decide what to buy, let us help.
Each rental property comes with its own advantages and challenges, and when you’re trying to decide where to invest, 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 buy both property types. 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 San Diego. This is a competitive market right now, and you need to be prepared for it. Investors from all over the world are grabbing what they can when it comes to rental property.
As you’re deciding whether a single-family home or a multi-family property would be better, start with your own goals and your vision for where owning rental property will take you. Here’s what we can offer without knowing your specific goals, plans, and financial situation.
Understand Your Own Investment Goals
Before you make any type of decision about what to buy and where to buy it, you need to evaluate your own position and your own goals.
Why are you investing in a San Diego property?
This question has to be answered thoroughly before you choose a specific type of investment property. If you’re looking for cash flow, the path you take will be much different than if you’re looking for equity or appreciation. Perhaps you want a combination of cash flow and appreciation, which is ultimately what strong cash on cash return becomes.
Maybe you want a short term rental. Perhaps it's long term that fits into your investment goals better. This is information you need before you choose between multi-family and single-family investments.
If you aren’t clear on your investment goals, you’ll have some roadblocks that are hard to move past when you’re choosing where to invest next, or what to invest in for the first time.
Explore the San Diego Rental Market
As you put a plan into place for multi-family units, single-family homes, or some mix of the two, it’s a good idea to get to know what’s out there. You want to know what types of properties you’re going to have available to you.
In order to understand the San Diego rental market, you have to get to know the inventory and the neighborhoods. Before you make your decision, make sure you understand the local rental values, the vacancy rates, and what the tenant pool looks like.
Not sure where to start? Catch up with a property manager in San Diego. We spend every day following the market and staying one step ahead of the next tenant trend and rental shift.
Choosing Single-Family Investment Homes in San Diego
The demand for single-family rental homes is always strong in San Diego, and it has actually increased throughout the beginning part of this year.
Renters are looking for space, privacy, and convenience, and in many ways a single-family home can provide that. When you decide that this type of investment is best for you, there’s a good chance you can count on a strong tenant pool and an ongoing demand. We have a strong military presence in San Diego, and many members of the military are moving here with families. They want to rent a home rather than a condo or an apartment.
Another benefit to buying single-family versus multi-family homes is that tenants tend to be more stable. Your turnover will be much less than it often is with multi-family properties. This is an important consideration if you have a low tolerance for vacancies or if you struggle to meet turnover renovations and their associated costs.
If we’re looking strictly at the money, single-family homes are unlikely to deliver a lot of cash flow right away when you invest. Be prepared for the long game, which will absolutely pay off later. Single-family homes in San Diego will appreciate in value and deliver high returns when you’re ready to sell down the road.
Investing in San Diego Multi-Family Rental Properties
In San Diego, there are plenty of large apartment buildings, small apartment buildings, and even duplexes, triplexes, and quads. You can buy a whole building. You can buy a few units. You can invest in a luxury condo in an association.
A multi-family investment that’s well-maintained and attractive to high quality tenants will also earn you money.
Vacancy is less risky with these types of properties, and that’s an excellent argument when you decide you want a portfolio of units in a single building rather than a single-family home. Even buying an entire apartment building can generate ongoing income right away. In such properties, you’re likely to have tenants in place already.
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 repair and maintain preventatively. 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.
Let’s talk about which type of investment makes most sense for you. Please contact us at North County Property Group, and we’ll talk about where you should be looking.
