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SB-684 vs. Single-Family Rentals: Why More Units Don’t Always Mean More Profit

Many believe that SB-684 developments, which allow for splitting urban lots into smaller parcels with up to 10 units, are a guaranteed way to maximize returns. However, more units don’t always translate into higher profits. The real factors behind a successful investment are tenant stability, turnover rates, and maintenance costs. A well-placed single-family home with a reliable tenant can generate stronger long-term income than an SB-684 project struggling with frequent vacancies and costly turnovers.

SB-684 vs. Single-Family Homes: Which Performs Better?

A financial breakdown between a standard SB-684 development and a single-family rental reveals the hidden costs of maximizing unit count. Many SB-684 projects rely on temporary renters, leading to frequent tenant turnover, while single-family homes often attract long-term occupants.

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SB-684 Development with High Turnover

An investor had an SB-684 project in San Francisco that includes 5 units renting for $1,600/month each. In areas with temporary renters, tenants stay for 14 months on average, leaving a 2-month vacancy per cycle. The financial impact is clear:

Gross 10-year rent: $1,600 x 5 units x 12 months x 10 years = $960,000
Lost rent due to vacancy: $960,000 x (2 months vacant / 14 months) = $137,000
Number of tenant turnovers per unit over 10 years: 10 years / 14 months = 8.5 turnovers
Total turnovers across all units: 8.5 turnovers x 5 units = 43 turnovers
Renovation cost for 43 turnovers: $2,800/turnover x 43 turnovers = $120,400
Net 10-year rent: $960,000 – $137,000 – $120,400 = $702,600

The frequent turnover and high vacancy rates significantly reduce profitability.

Single-Family Investment with Long-Term Tenants

A carefully chosen single-family home in a desirable location attracts tenants who stay longer, reducing overall expenses. If a $2,700/month rental home with 2 units retains tenants for 5.5 years on average, with only 1 month of vacancy per cycle, the numbers look much stronger:

Gross 10-year rent: $2,700 x 2 units x 12 months x 10 years = $648,000
Lost rent due to vacancy: $648,000 x (1 month vacant / (5.5 years x 12 months)) = $9,800
Number of tenant turnovers per unit over 10 years: 10 years / 5.5 years = 1.8 turnovers
Total turnovers across both units: 1.8 turnovers x 2 units = 4 turnovers
Renovation cost for 4 turnovers: $1,200/turnover x 4 turnovers = $4,800
Net 10-year rent: $648,000 – $9,800 – $4,800 = $633,400

Even with fewer units, the single-family home generates more consistent returns due to fewer vacancies and lower maintenance expenses.

Key Factors to Consider

Tenant Stability and Economic Resilience

Many SB-684 projects attract lower-income tenants who are more vulnerable to job loss and economic downturns, leading to higher delinquency and eviction rates. In contrast, single-family rentals tend to attract financially stable tenants with established employment, leading to more predictable rental income.

During past economic downturns, multifamily properties in less desirable areas experienced widespread vacancies and foreclosures, while single-family rentals in strong markets saw stable occupancy and rental rates.

Tenant Retention and Lease Enforcement

Renters in multifamily units are often more temporary. If an issue arises, they may leave with little notice, resulting in lost rent and additional turnover costs.

Single-family home tenants, however, tend to be more invested in their living situation. With stronger financial commitments and a desire for stability, they are less likely to break leases or abandon the property.

Which Investment Offers Greater Stability?

Does an SB-684 project outperform a single-family rental? The answer depends on the tenant segment and turnover rates.

Simply increasing the unit count doesn’t guarantee higher returns. Tenant reliability, rent growth, and maintenance costs have a greater impact on long-term profitability.

In many cases, a well-located single-family rental can provide a more stable income than an SB-684 development, thanks to longer tenant stays, lower turnover costs, and stronger financial commitments. Instead of focusing solely on unit count, investors should prioritize properties that attract responsible, long-term tenants for greater financial security.