Owning a home in America is not easy. High home prices, rising interest rates, and stricter lending standards have made home ownership a mirage for many. This means that buying a single family home investment can be a great way of making money in real estate.
In the world of real estate, the debate about investing in single family homes vs multi family properties has continued to rage for decades. Investors, lenders, property managers, and insurers have always held different opinions on these two types of real estate. While the choice of the best real estate investments is largely motivated by personal goals and preferences, many do find that investing in single family homes is the better option.
According to a 2018 study conducted by Millennium Trust, about 90% of high net worth (HNW) investors are now going for alternative investments such as real estate. Out of those surveyed, a whopping 73% said that they prefer investing in single family homes. Further, a 2017 survey by the Urban Institute shows that single family homes for rent were growing much faster compared to multi family housing and owner-occupied single family dwellings.
So What Is a Single Family Home?
A single family home (SFH) is basically a stand-alone residential unit with no shared walls. Such properties often come with a back and front yard, as well as a garage.
What Are the Pros of Investing in Single Family Homes?
1. More Affordable
A rather obvious reason for investing in single family homes in 2019 is cost. The price for purchasing such investment properties is often much lower than that for buying multi-dwelling units (MDUs). While the down payment for MDUs could be 25-30%, single family home investors typically have to pay a 10-15% down payment. Insurance rates are also much cheaper for single family rentals.
2. Many Options Below Market Value
At any given time, there are usually more single family homes for sale than multi-dwelling units. With all the options available in the single family rental market, it is easier to find an investment property that is priced below market value. Maybe a family wants to sell quickly due to job relocation or divorce. Or a property could be distressed, thus requiring renovation or repairing. Or the bank might be selling a property that has been foreclosed. Whatever the case, real estate investors are more likely to land a great deal when investing in single family homes.
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3. Easier Liquidity
Finding a buyer for a single family home is much easier than finding one for a multi family home. The process of selling is shorter and less stressful for property owners. This is especially important for people that are venturing into real estate investing for the first time.
4. Less Maintenance
So much could go wrong in a multi family home. For example, multiple appliances could break down, multiple HVAC systems could malfunction, and multiple units might require pest extermination. Maintaining such a rental property can, therefore, be a very time-consuming and expensive affair. Single family home property management is not as demanding and requires much less maintenance and repair.
5. No Inter-Tenant Conflicts
Tenant to tenant conflict is one of the main headaches of managing a multi family property. Someone’s child is beating up another, someone’s car is parked badly or someone’s dog is barking loudly. Handling such conflicts can be time consuming and draining. Since investing in single family homes means only one tenant, such conflicts are unheard of.
6. Easier Financing
If a real estate investor does not have the cash to pay for a rental property, they will have to look for financing. In most cases, financing for a multi family home is more expensive than financing for investing in single family homes. Lenders are more likely to offer better interest rates, longer terms, and higher loan-to-ratio values for investing in single family homes.
7. Tax Breaks
Real estate investors that have owned a single family home for more than one year qualify for lower capital gain taxes when they opt to sell. Investing in single family homes also offers tax breaks as a result of depreciation. Investors can take an annual deduction that considers the value of the building and its remaining years of useful life.
8. Tenant stability
When it comes to rental property, tenant stability is very crucial. Vacancy means lost income for real estate investors that still have to incur marketing, leasing, and repair costs. Single family home renters are usually older people with higher incomes than multi family dwellers. In addition, such renters are probably married with children. As a result, they prefer to reside in a private, detached home with a compound in a pleasant neighborhood. Renters of single family investment properties are, therefore, more likely to stay longer.
9. The Millennial Phenomenon
According to the Pew Research Center, baby boomers are quickly getting outnumbered by millennials. This phenomenon will have a great impact on the US single family rental market in 2019. Since most millennials (people born between 1981 and 1996) are now starting families, they are moving from apartments to more spacious, stand-alone single family homes. Many millennials are choosing not to buy homes due to lifestyle preferences. Since they are always on the move due to leisure trips or career changes, they opt to live a renter lifestyle which gives them more flexibility.
10. Higher Appreciation Rate
Historically, single family properties appreciate much faster than multi family homes. Usually, the value of single family homes is determined by the owner occupied buyers’ supply and demand. On the other hand, multi family properties are valued based on their condition and the rents being collected. Therefore, the value of MDUs will only rise if the rents go up in the location.
That is why you should consider investing in single family homes in 2019. Want to start your search now? Use our Property Finder to find lucrative investment properties that match your criteria in a matter of minutes!