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Prospective investors in rental real estate are often greeted with the promise of constant cash flow and relative market stability in owning a rental property, all of which guarantee a hedge against upkeep and renovation expenses and a rapid return of investment. For smaller investors, a single-family home, with its higher rate of appreciation and lower initial investment, seems ideal.
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However, the property can only maintain cash flow if it is occupied. Single-family homes, though more popular with mature demographics such as growing families, have a key disadvantage in that they lose their cash flow buffer when they are vacant.
Multifamily homes, even when partially occupied, provide some cash flow, which can cover expenses in part. Although many multifamily buildings are more popular with single adults and smaller families, many others, particularly larger developments, have sufficient public space to attract larger family occupants.
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Multifamily properties, in spite of their higher overall capital investment, also have a few other advantages in terms of value. Under-rented properties (and those with improvements made to them) rise in value steadily, making up for their initial disadvantage in gradual appreciation to single-family buildings.
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