You may have heard that a multi-unit building provides better cash flow to a real estate investor. You may also have heard that the rents for multi-unit properties are lower than what you can get for a single family home so a single family property is better. In fact you’ve likely heard both sides of thewhich is better single family or multifamily argument. So if you’re getting ready to build a new rental property, what should you go for?

You have a choice to make but will you be better off with a multi-unit rental? Or is a single family home your best bet?

When building new you can build mostly anything you want. Within reason and building ordinances of course but you have options. And when deciding to build a fourplex or a one story single family home there’s less to decide on the type of structure and more on the math when the unit is completed. There is no hands-down answer to the question, “Which is better?”

Instead, do your homework and pretend you built both. First, identify the neighborhood where you want to build. If you want to build a fourplex, are there other similar properties in the neighborhood? If not, there is likely a restriction on multi-unit properties in the area. If there are fourplexes in the area, are the properties rented out now or are there consistent vacancies? If the properties are rented out, what is the current market rent for each unit? If you construct a fourplex and obtain permanent financing for it, will the rents more than cover your financing costs, taxes, insurance and maintenance? If so, mark that number then run the same math with a single family home.

Consider your costs to build, your permanent financing and determine what rental income you can expect from the home. Now compare the potential profits from each. Which provides you with more income? It doesn’t matter if it’s a single family, a duplex or fourplex. What matters is how much money you put in your bank account each month.