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If you’re looking to build wealth through real estate, one of the biggest questions to consider is the type of real estate you should invest in. Should it be single-family houses? Multifamily apartment buildings? Big commercial properties?
The short answer: it depends.
The right type of investment for you is based on your experience, goals, risk tolerance, and how fast you want to grow.
In this article, we’ll walk through the pros and cons of each option so you can make an informed decision. We’ll share some of the wisdom we’ve learned (sometimes the hard way) and give you a framework for deciding where to start.
Single-Family Rentals: The Gateway to Real Estate Investment
Single-family rentals (SFRs) are the preferred choice of most first-time investors. You can think of them as the “entry-level” of real estate investment– and that’s not a bad thing. They’re simple, familiar, accessible, and perfect for building the foundation of both your business and experience as a landlord.
Why Investors Love Them
Easy to Finance – Single-family properties have the lowest barrier to entry when it comes to financing. Even though SFRs are investments, they still involve conventional loans instead of complex commercial lending.
Less Maintenance Headache – SFRs can certainly have maintenance issues but compared to a twelve-unit property, dealing with one roof, one HVAC, and one tenant is a breeze.
Attracts Long-Term Tenants – Single-family homes attract, well, families. Tenants with children usually want to remain in the same school district and avoid the hassle of moving with kids, so they tend to stick around longer than apartment tenants. That can often mean years without a single month of lost rental income due to vacancy. Stability = profit.
Liquidity – Need to sell? Your pool of buyers for SFRs is much bigger as it includes both investors and folks looking to purchase a home for themselves. This makes it a lot simpler to offload the property.
Fewer Regulations – Beyond HOA rules and local ordinances, you don’t face the same oversight larger buildings do.
The Flip Side
One Tenant = One Check – The tenants may stay longer but that doesn’t mean they’ll stay forever. When your SFR is vacant, you’re at zero income– and you feel the pressure immediately.
Cash Flow Isn’t Huge – Rental income of $150–$300 per month in today’s market is solid, but it’s hardly a living if it’s x1. You can’t expect to put your feet up after buying a single house.
Scaling Is Slow – Growing a portfolio one house at a time takes patience.
Financing Caps – Fannie and Freddie limit the number of conventional mortgages you can hold. Once you have more than ten you’ll need creative financing.
Bottom line: If you’re brand new to investing, single-family rentals are the easiest way to get started. They’re fairly simple to finance and manage, as well as liquidate if you want to move on or find the landlord life isn’t for you. Just understand that you’re playing the long game and won’t get rich overnight.
Multifamily Properties: The Next Step Up
Now let’s talk duplexes, triplexes, and quadplexes — the “middle ground” between single-family and commercial.
Why Multifamily Works
House Hacking Potential – For many people, housing is their biggest expense, but owning multifamily property can massively lower your personal overhead through house hacking. Live in one unit, rent out the others, and let your tenants pay the mortgage. It’s a classic (and proven) wealth-building strategy.
More Stable Income – If one tenant moves out, you still have rent coming in from the others. This offers more breathing room than an SFR where you have all your eggs in one basket.
Higher ROI – $200 per unit per month adds up a lot more quickly when you’re renting out four units instead of one.
Appreciation + Cash Flow – You get the benefit of monthly cash flow in the short-term, plus the increased value of the property over the long-term. Just remember that appreciation is tied to market trends and subject to considerable variation.
Challenges to Watch For
More Management – Like the song says– more tenants, more problems. Prepare for an increase in phone calls, maintenance requests, and potential drama.
Financing Can Be Tricky – Even though multifamily properties are still residential, the bar for securing a loan is higher. You’ll usually need a larger downpayment than you would to finance an SFR.
Tenant Dynamics – Disputes between neighbors are common and if you own the building where the adversaries in question live, you often don’t get the luxury of staying out of it. Be prepared to add amateur therapist / arbitrator to your repertoire of professional skills and encourage everyone to get along.
Competition Is Fierce – Duplexes and quads are highly sought after and multifamily deals tend to move fast. Make sure you can take the heat.
Resale Market Is Smaller – Unlike with SFRs, the market for multifamily is limited to investors and doesn’t include regular retail buyers. It’s a bit of an apples to oranges comparison since, like we said, the multifamily market is usually very competitive, but it’s still something to consider.
Bottom line: Multifamily property can be a best-of-both-worlds asset for an investor who is ready to take a step up. Landlords that are confident handling a little more complexity can enjoy stronger cash flow and asset appreciation, while still benefitting from the reduced red tape and lowered risk that comes with owning residential property.
Commercial Real Estate: The Big Leagues
Once you cross the five-unit threshold, you’re officially in commercial territory. This is where many investors dream of getting — but it’s also where mistakes can get expensive fast. If you think you’re ready to take the plunge into commercial investment, it’s important to come prepared.
Why Commercial Looks Attractive
Serious Cash Flow Potential – Even $100 per unit adds up to a solid chunk of change each month when you have 50 tenants. Commercial properties are the quickest avenue to building wealth as an investor.
Scale Quickly – You’re not piecing together a portfolio one property at a time, and each acquisition of a single commercial property adds multiple sources of monthly cash flow.
Professional Management – Larger properties yield more income for your rental business. You can invest some of this extra cash in professional management services and outsource many of the day-to-day headaches.
Vendor Relationships – Contractors love steady work, and larger properties give you more leverage in exchanging loyalty for better rates.
Value-Add Plays – The improvements you make to commercial properties can yield big dividends. Renovating a commercial asset will allow you to raise rents and force appreciation. This is how many investors build serious wealth.
What Makes It Tough
Big Money, Big Risk – Investing in commercial requires larger down payments and larger reserves. This significantly raises the barrier to entry for investment, and also means that you stand to lose a lot more when mistakes are made.
Complex Financing – Banks require much more reassurance when it comes to commercial financing. You’ll usually need partners or syndications before they’ll agree to lend you money.
Turnover Is Higher – There are always exceptions to this rule, but generally tenants don’t view apartments as forever-homes. Be prepared to deal with regular turnover and more frequent vacancies.
Heavy Regulation – Commercial investments are subject to much more scrutiny and regulation than residential properties. As a business owner you’ll need to be on top of building codes and compliance, and expect regular inspections.
Economic Sensitivity – Recessions hit renters hard, especially in Class B and C neighborhoods. Mass layoffs in local industries can quickly become catastrophic for your bottom line if large numbers of tenants suddenly can’t pay their rent.
Bottom line: Commercial investment can be incredibly rewarding, but it’s not for rookies. Even if you happen to have the funds to acquire a commercial property as your first investment, it’s wise to get some residential experience under your belt before taking on bigger risks.
So… Which One Should You Choose?
Here’s a simple way to think about it:
Just starting out? Stick with single-family. It’s the easiest, safest way to learn.
Ready to grow? Try a duplex, triplex, or quadplex. House hacking is a fantastic wealth-building tool.
Experienced and capitalized? It might be time to– carefully!– consider going commercial. You could dip your toe in by investing passively in a syndication, or you could really take the plunge. Just make sure you know the risks and how much you can afford them.
Final Word
Real estate investing isn’t a sprint — it’s a marathon. Whether you’re buying one house a year for ten years or scaling into big commercial properties, the key is to align your investments with your experience, resources, and long-term goals.
Start where you are, grow at your pace, and don’t feel pressured to “jump levels” before you’re ready. The best investors we know built slowly, gained experience, and only then moved into bigger deals.
