Everyone talks about single family homes – also known as single family detached homes, or simply, detached houses – and how they make for the best real estate investments. In fact, many real estate investors choose them over other types of investment properties because they can deliver higher cash flow, build larger amounts of wealth, and generate a higher return on investment.
The single family rental market 2020 is looking great. Demand for single family rental properties is surging, with more and more people turning to renting properties rather than owning them. The US homeownership rate has in fact been on decline since 2005. This makes it the best time for single family home investing.
Nevertheless, some beginner real estate investors assume that any detached house makes for a good real estate deal. What they’re ignoring is that, in reality, there are a number of factors that must be taken into consideration to guarantee a successful single family home investment. So, if you are a beginner investor, make sure to have a look at all these factors before investing in single family homes.
1) Location
As with all investment properties, the most important factor you need to consider before you look into single family homes for sale is the location. Tenants will do their home search based primarily on location, so investing in a wrong location can be a very expensive mistake.
Single family homes are usually rented out to families with children, therefore you need to make sure that the home you want to invest in is located in an area that meets all the needs of a family. Tenants with children would want to live in an area that is safe, that has good schools, and that is close to health facilities, recreational spaces, and shopping centers.
Before investing in single family homes, you must also make sure to look for areas that are landlord- and investor-friendly, i.e. areas where the laws are in favor of landlords and real estate investors. It’s also worth mentioning that the best areas for investing in single family homes are areas where investment property taxes are not very high and the investment property insurance is good. Another thing to consider is that if you ever choose to list your investment property on short-term rental platforms such as Airbnb, make sure to find locations where it is legal to operate this type of rental.
2) Profitability
In real estate investing, you want to make money by investing in positive cash flow properties. A real estate investment is deemed successful when it generates a positive cash flow. This is achieved when your income exceeds your expenses, i.e. when you make a profit.
By investing in single family homes, an investor receives high cash flow. The returns received by investing in single family rentals tend to be higher than other types of rental properties such as apartments and multi family homes. The main reason for this is that tenants are usually the ones in charge of all the utility payments in detached houses. This isn’t the case for almost all other rental properties, where it is the landlord that pays the water, sometimes even the gas and electricity bills. Additionally, single family homes typically have lower property taxes and insurance rates because they only count as one dwelling unit. This being said, if you are investing in single family homes, you have fewer expenses to deal with and can, therefore, enjoy a higher return on investment.
However, in order to be sure that your property will enjoy positive cash flow, it is advised that you conduct an investment property analysis before investing in a single family home. You can actually do it yourself using Mashvisor’s Rental Property Calculator. This is a tool that will help you estimate returns in the function of different input parameters.
Related: Why Positive Cash Flow Properties Are So Important for Investors
3) Purchase Price
The number one concern for real estate investors is money. When searching for an investment property, the first thing an investor will do is check the price and see if he/she can afford to buy it. Many choose to invest in single family homes because they are typically cheaper than other types of investment properties. Due to their smaller size, single family homes are always set at lower prices regardless of important factors such as area, maintenance, and age. This makes them more affordable to a greater number of investors, especially beginner investors who are looking to buy their first investment property. And since single family homes are cheaper, they are easier to purchase; You can, in fact, get a loan from the bank more easily when you are making this type of purchase.
So if you are new to the real estate game, then investing in single family homes might be the best option for you. However, it is recommended that you examine all the different investment property financing methods so you can select the one that suits you best.
Related: 9 Ways to Invest in Real Estate with Little or No Money
4) Property Appreciation
One of the benefits of investing in real estate is being able to generate money through appreciation. Many investors choose to buy a real estate property with the goal of selling it at a higher price point in the future.
For many real estate investors, single family homes are the best investment property type. When it comes to comparing resale values, it appears that single family detached homes tend to appreciate more than other types of real estate properties. In fact, they generally see more demand, and this leads to high appreciation rates.
For this reason, it is crucial for investors to look for single family homes that are located in areas witnessing an economic boom, where the population is growing, businesses are thriving, development projects are planned, while the land and housing are becoming limited. If you take into account all these factors, you are guaranteed to benefit from huge real estate appreciation when investing in single family homes.
5) Tenants
Tenants play an important role in the success of a real estate investment. The dream of every real estate investor is to find good tenants, who pay rent on time and cause very little problems – or none at all!
The good news for those investing in single family homes is that they have a better chance of dealing with low-risk tenants. Tenants who choose to live in single family homes are more stable and responsible than those dwelling in an apartment for example. This is because people renting a single family home tend to stay for longer periods of time, and as a result, you won’t have to deal with turnover, empty space or countless viewings for potential tenants. They are also more likely to take good care of the property as they will treat it as their own home. You can then expect less damage done to your property. Therefore, investing in single family homes can provide you with both reliability and stability, and can easily help you achieve your investment goals in the long term.
But hey, anything is possible! You can’t always guarantee that your single family home renter will be a good one. That’s why, in order to be sure you’re getting the best tenant, it is important to screen every potential tenant thoroughly. Run a credit and background check to make sure that your renter can afford the rental property and that they do not engage in any illegal or criminal activity. It’s also a good idea to contact their employer to confirm their employment and call their previous landlords to know if they have paid all rent. You can hire a rental property management company to do all the work for you, but know that this comes with a cost. Either way, proper screening will help you avoid many problems when investing in single family homes.
Related: Tenant Screening Process: Red Flags Landlords Should Not Ignore
6) Amenities
The physical appearance and features of your property are key to attracting tenants. When people are looking for a property to rent, they make their decision based on the amenities that the property offers, such as the number of bedrooms, bathrooms, parking spots, etc.
As previously mentioned, most single family homes are rented out to families on a long-term basis. Their main advantage is that they offer more privacy than any other type of property. Families can feel a sense of freedom and don’t have to worry about their upstairs or downstairs neighbors, especially if they have children who make noise all the time. Also, single family homes almost always have a yard where children can play. If you can find a home with a garden or a play structure, that’s even better as it makes the property even more attractive to families.
So before buying a single family home, you need to make sure to find one that has a good number of amenities. Remember that people looking into single family homes for rent will judge by the properties’ physical features. The more amenities you have, the better. This way, you can charge your tenants higher.
Conclusion
Single family homes have many benefits that make them stand out as the best investment properties. However, real estate investors must still consider all the factors listed above before making any move in order to maximize their chances of securing a good real estate deal.
Are you thinking of buying a single family home? Click here to start searching for and analyzing the best properties in your city and neighborhood of choice.