Apartments Tower Over SFH as Investments

Real estate investors often debate whether to invest in single-family homes or apartment buildings. While both asset classes offer opportunities for wealth creation, apartment buildings provide superior benefits in terms of passivity, scalability, risk management, financing, and value control. Here’s why investing in apartment buildings is a more strategic and lucrative choice.

Apartment Building Investing Is More Passive

Owning multiple single-family homes requires significant hands-on management. Each property has separate maintenance needs, tenants, and potential vacancies, making it labor-intensive for investors who wish to scale. In contrast, apartment buildings consolidate multiple units under one roof, making property management more efficient. Investors can hire professional management companies to oversee day-to-day operations, making apartment buildings a more passive investment. For example, a landlord managing ten single-family homes in different locations must deal with ten separate property tax bills, insurance policies, and maintenance requests. In contrast, a 10-unit apartment building has one roof, one insurance policy, and a single set of expenses, dramatically reducing management complexity.

You Can Control Value by Influencing NOI

The value of a single-family home is largely determined by comparable sales in the market, leaving investors at the mercy of broader economic trends. Apartment buildings, on the other hand, are valued based on their net operating income (NOI). By increasing revenue (through rent adjustments, additional services, or higher occupancy rates) and reducing expenses, investors can directly increase their property's value. This control makes apartment investing a powerful wealth-building strategy. Suppose an investor owns a 20-unit apartment building and increases rent by just $50 per unit. This adds $12,000 annually in revenue. If the property is valued at a 6% cap rate, this small rent increase boosts the building's value by $200,000 ($12,000 ÷ 0.06).

Lower Delinquencies and Reduced Risk in Market Downturns

Single-family home investors rely on a single tenant per property, meaning a vacancy results in 100% income loss for that unit. In economic downturns, tenants may struggle to pay rent, increasing delinquency risks. Apartment buildings, with multiple tenants under one roof, distribute this risk across many units, reducing overall income volatility. Even if a few tenants default or vacate, rental income from the remaining tenants ensures steady cash flow, making apartments a safer investment during economic downturns. If we assume that an investor owns ten single-family rental properties, and two tenants fail to pay rent for three months. That means a 20% reduction in rental income, which could severely impact the ability to cover mortgage payments, property taxes, and maintenance. In contrast, an investor with a 50-unit apartment building who loses two tenants experiences only a 4% drop in income, making it much easier to absorb financial shocks. According to the National Association of Realtors, during the 2008 financial crisis, single-family home foreclosure rates surged to 4.6%, while apartment building delinquencies remained below 1%. This resilience makes multifamily assets a safer investment in economic downturns.

Financing Is More Readily Available

While single-family homes are typically financed through conventional mortgages, lenders view apartment buildings as commercial investments, often offering more attractive financing options. Banks and private lenders recognize the stability of multifamily assets and provide loans based on the property’s performance rather than solely on the borrower’s personal credit. Additionally, apartment buildings qualify for non-recourse loans, government-backed financing, and syndication opportunities, allowing investors to leverage capital more effectively. The Canada Mortgage and Housing Corporation (CMHC) offers insured multifamily financing with loan-to-value ratios up to 85% and amortization periods of up to 40 years. This makes financing apartment buildings in Canada highly attractive, as CMHC-backed loans typically come with lower interest rates and longer terms compared to conventional single-family home mortgages. Likewise, in the US, the Federal Housing Administration (FHA) and Fannie Mae offer multifamily loans with loan-to-value (LTV) ratios as high as 85%, compared to traditional single-family home investment loans, which often require 25% or more as a down payment.

Scalability: Grow Your Portfolio Faster

Building a portfolio of single-family homes requires purchasing, financing, and managing multiple properties across different locations. This fragmented approach slows scalability. Apartment buildings allow investors to acquire multiple rental units in one transaction, significantly accelerating portfolio growth. A single 50-unit building is far more efficient to manage than acquiring and overseeing 50 individual houses. This efficiency makes apartment buildings the preferred choice for investors looking to scale quickly.

According to CBRE, institutional investors prefer multifamily properties because they provide long-term stability and higher returns. Multifamily properties generated an average annual return of 9.75% over the last 20 years, outperforming single-family rentals at 8.4%.

While single-family homes can be a viable investment, apartment buildings offer superior benefits in terms of passivity, risk management, value control, financing, and scalability. By investing in apartment buildings, real estate investors can build a more stable, profitable, and efficient portfolio that withstands market fluctuations while generating long-term wealth.