Is it better to invest in 3 middle class rental houses or a much older 6 unit apartment building, assuming both are in the same market and cost about the same?

In my 40 years’ of real estate investing I would personally choose the three rental houses for the following reasons:

  1. Buying three homes in different areas of a market diversifies your risk to some degree depending on how far away they are from each other. This helps to protect you from local economic downturns, natural disasters and other dangers.
  2. Buyers will sometimes overpay for a single family house because they fall in love with it thereby increasing your profit. However, an investor in apartment buildings is mainly concerned about return on investment and will never overpay.
  3. Single family homes are easier to sell than an apartment building since there are many more potential buyers for homes than investment properties.

There are some advantages of buying the apartment building:

  1. Apartments tend to have lower overall operating costs than an equivalent number of single-family homes.
  2. Individual units in a single apartment tend to be easier to service because they’re all in one location and appliances as well as other amenities are similar in age and manufacturer.

Obviously, many other factors can affect this decision but I have always invested in single-family homes and have been extremely satisfied with the results.

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