One of the most common types of rental properties is single-family homes. In fact, in many US cities, they tend to dominate the rental property market!
Due to their popularity in the rental housing market, many new investors are choosing single-family homes first when they are beginning to build their portfolios. But is this a smart decision for your growing business? Our opinion is: yes!
While every investment has its own advantages and disadvantages, for someone who is just starting out when it comes to investing in rental properties, single-family homes have more positives than negatives.
The rising demand for single-family homes, paired with their affordability and potential for a solid profit, makes them a wise choice for any rental property owner.
Want to know more? Keep reading to find out what makes single-family homes such great investments.
What Exactly is a Single-Family Home?
Before we dive into why a single-family rental property can be an excellent investment, let’s look at what exactly defines a single-family home. These are rental homes that have only one unit. Usually, they are located in rural or suburban areas of a city.
Adding to their appeal, single-family homes usually have front or back yards. They can come in a wide variety of shapes and sizes, and are the ideal home for tenants of all walks of life.
Now that we have established what exactly a single-family home looks like, we’re ready to talk about the benefits of owning one!
So, here are 10 reasons why we think you should invest in a single-family rental property.
10 Reasons to Invest in a Single-Family Home
1. Single-Family Homes Are in High Demand
When choosing which property to invest in, it is important to consider the demand before solidifying your decision. Luckily, single-family homes tend to be the most sought after when it comes to new tenants looking for their next home.
In fact, the National Rental Home Council states that single-family homes make up 40% of the total rental property market. This high level of demand makes sense! Young families, working professionals, and even college students often prefer to live in a single unit property.
The benefits of living in a single-family home are endless. The privacy, the additional space, and the possibility of having a front or backyard are all benefits that many different kinds of tenants can enjoy.
This increase in demand also means that single-family home vacancies have been going down dramatically in recent years, and it is harder than ever for a tenant to find the perfect home.
This is good news to anyone who is looking to invest in a single-family rental property! By choosing a single-family home, you will no doubt find a high-quality tenant in no time.
2. Single-Family Homes Are Profitable Investments
Due to their high demand and generally lower supply, single-family rental homes can be quite lucrative. Annually, the average rental rate for single-family rental homes increases by 3% every year.
After all, you can charge more for rent for a house than you can for an apartment. While an apartment complex or a multi-family home may deliver multiple rent checks per month, they often come with an extra list of fees, duties, and responsibilities. Further, single-family rental homes can come with tax deductions.
3. They Are Affordable Properties That Have a Faster Appreciation
A single-family home is usually a fairly affordable investment to make. While their popularity in the market has led to slight price increases, single-family homes are still one of the more affordable options out there when it comes to choosing a property to invest in.
On average, a single-family property is more affordable than something like an apartment complex or even a duplex. But why are these properties so much more affordable than others on the market?
A single-family home typically has less square footage and fewer units to profit from. Since you will be spending less money upfront with a single-family home than you would an apartment complex, you’ll have less risk involved with your investment.
Additionally, while a single-family home generally has a lower initial cost, they tend to appreciate in value at a faster rate than multi-family properties. While this may not matter until you end up selling the property, your investment will be sure to grow over time.
Due to their affordability, appreciation rate, and lower risk factor, a single-family home is definitely the right choice for any rental property beginner!
4. Single-Family Homes Are Compatible with Many Rental Strategies
For many investors, the main criteria for purchasing a new rental property involve the following big factors: demand, affordability, and profit. Single-family homes meet these requirements and more, including some secondary criteria that you may want to consider.
For example, single-family homes can be used for many rental strategies, rather than just traditional long-term renting. They can be used for short-term rentals of any variety, such as Airbnb. So regardless of what rental strategy you wish to take, a single-family home can be a suitable choice!
5. They Are Easier to Finance Than Other Types of Rental Properties
The process of purchasing a single-family home is relatively easier and less of a tedious ordeal than it may be to purchase other types of rental properties, such as an apartment complex. This is due to the financing of single-family homes.
While the generally lower price point of single-family homes contributes to this, there is more to it than just that. For example, a downpayment for a single-family home tends to be smaller than one for a multi-family property. Further, if you’re a beginner investor, it may be easier to get a loan from the bank for a single-family property than a multi-family one.
6. Single-Family Rental Properties Are Easier to Manage
A single-family home generally requires less of a hands-on approach to property management than other types of rental homes. This is true simply because these properties are smaller and will have fewer responsibilities and tasks attached to them.
This means that a rental property owner of a single-family home doesn’t necessarily have to invest in the services of a professional property manager right away. After all, self-managing your rental property is a lot more attainable when you are renting out a property with only one unit!
If you rent out an apartment building, you will have more tenants to handle, more fires to put out, and more maintenance to deal with. Things like tenant disputes, rent collection, and unwanted surprises would take all of your time and energy to manage.
In order to keep up with the long list of responsibilities, you would probably need to hire a property manager. While hiring a property manager has many benefits, the cost of this addition would ultimately come out of your profits, resulting in less income for you.
This can make an even larger difference in your income when you’re just starting out in the rental property business.
With one single-family house, you will have to deal with the occasional maintenance issue, and if you are handy enough, you may even be able to make the more minor repairs yourself.
However, if you’re not equipped to make smaller repairs on your own, you can simply build a relationship with a reliable professional in your area who you can call on whenever a problem comes up with your rental property.
Ultimately, the decision to hire a property manager is influenced by multiple factors, such as how involved you wish to be in the management of your rental property or if you just want to earn passive income.
However, if you wish to do it all yourself and save some money upfront, a single-family home is the kind of rental property that makes this goal the most achievable for a new property owner!
7. Single-Family Homes Have an Easier Utility Bill Setup
When you rent out a single-family property, the tenants will usually be responsible for any and all utility bills. They will need to register themselves and make the payments on their own.
In a multi-family property, however, the property owner often takes on the cost of water, and sometimes even gas and electricity. Choosing a single-family property will only help your profit, in addition to preventing your tenants from abusing the system or wasting utility resources.
8. Single-Family Homes Tend to Attract Higher-Quality Tenants
While every kind of property can attract qualified and unqualified tenants, house renters tend to be more responsible with your property and easier to deal with.
Typically, a tenant who is prepared to take on the responsibility of renting a whole single-family house is pretty reliable. They are more likely to take good care of the property, including caring for the yards and treating the home as if it is their own.
A high-quality tenant is one that pays their rent on time every month and always abides by the terms of the lease. Due to single-family homes usually being a larger commitment to rent, they generally attract higher-quality tenants.
Tenants who are renting a house are more likely to stay long-term, and this is for a few reasons. First, a house usually requires a larger amount of furniture and can be more of a hassle to move in and out of. Further, tenants who are looking to rent a house will consider it their home.
You won’t have to deal with frustrating vacancies, tenant turnover, or interviewing a bunch of new applicants if you have high-quality, long-term tenants occupying your rental property.
Additionally, in a single-family home, you have to deal with fewer tenants overall, so it will be easier to keep them happy. You will need to settle fewer disputes between tenants and avoid the headache that can often come with managing a rental property with many units and lots of tenants.
9. You Can Offer Your Tenants Yard Space in a Single-Family Home
In most single-family homes, there will be sufficient yard space to offer your tenants. This is a huge selling point for tenants of many different lifestyles.
Whether your residents are looking for a yard that their children can play in, a space for pets to run around, an outdoor dining area for entertaining friends and family, or just a nice outdoor space to spend their free time in, a good yard can make your rental property all the more attractive. This will make it even easier to find tenants to rent your property.
You can enhance this space and make it even more accommodating to your tenants by adding a nice fence for privacy, upgrading the lawn, or even adding a garden for your residents to make use of. The more you add to make the space feel like home for your tenants, the longer they will stay!
10. Less Maintenance is Required in a Single-Family Rental Property
Landlords often cite maintenance responsibilities as one of the most frustrating, time-consuming, and costly aspects of owning a rental property. With a single-family home, you can significantly cut down on maintenance, often avoiding the extra headache it can bring!
Due to single-family homes attracting high-quality tenants, your residents are more likely to treat your property with respect and care. This will greatly reduce the need for maintenance and repairs. But even if your tenants are of the highest quality possible, there will still be repairs that need to be done on any rental property. It’s unavoidable!
The great thing about single-family homes is that there are significantly fewer things to go wrong. Typically, in a single-family rental property, there is only one set of laundry machines, one furnace, and maybe two bathrooms, depending on the size of the home.
When you own a multi-family property, there are multiple fixtures and appliances that need attention regularly. This can end up getting expensive and time-consuming. By choosing a single-family home, you can worry less about maintenance, and the responsibility as a whole will be less daunting.
Additionally, you will have the time and energy to respond to maintenance requests from your tenants quickly and efficiently. This reduces the likelihood of low-quality repairs or small issues going unnoticed and turning into larger, more costly problems in the future.
Ultimately, if you are new to investing in rental properties, single-family homes are an excellent choice. With a single-family home, you take less of a financial risk, earn more profit, have less responsibility, and use the demand for single-family homes to your advantage.
This will only help you in the current competitive rental property market! While there are no guarantees in the world of rental properties, a single-family home is often a great investment. However, at the end of the day, it is always important to consider what is best for you and your new business!