When searching for real estate investment properties, real estate investors are faced with a variety of options. There are small vs. large properties, expensive vs. more affordable properties, and a multi-family home vs. a single-family home. Today we are discussing single-family homes and their advantages and disadvantages.
A single-family home is a real estate property that consists of one property unit which houses only one family, sits on its own piece of land – sold part and parcel with the home – and is not attached to anyone else’s residence. In general, this type of investment property is more desired by tenants, specifically families. However, before investing in a single-family home, there are a number of advantages and disadvantages which real estate investors should take into consideration.
Advantages of a Single-Family Home
Having a Yard
Single-family homes are more likely to have larger yards than multi-family homes or attached units – in fact, many attached units may not have a private yard at all, or they may contain a yard, but it is usually considered a common area. In addition, depending on the rental agreement, not all tenants may have access to the yard and the outside area which will drive them away.
The most obvious advantage of single-family homes is that they tend to give you more privacy. There is more freedom to express your individuality and run wild with your imagination; you can remodel, renovate, and paint the walls whichever color you want; you’ll have more furniture options and decorate your house the way you see appropriate; and you don’t have to worry about your upstairs or downstairs neighbors stomping around or arguing with other tenants because you are the only one living there.
In addition, there are other amenities that can be used privately in a single-family home, which is something that many real estate investors prefer. For instance, in a multi-family home, there may be shared laundry facilities; however, you have your own private facilities when you are in a single-family house.
Cheaper Prices – Higher Cash Flow
A single-family home is most likely cheaper than other real estate investment properties, like multi-family homes. Single-family homes are set at lower prices even when important factors such as area, maintenance, and age are constant. The main reason for this is that single-family homes are simply smaller than some other real estate properties (such as multi-family homes).
The lower price of a single-family home serves as an incentive for many real estate investors. Since single-family homes are cheaper than other real estate investment properties, they are often easier to purchase. Moreover, lower prices also mean that obtaining a bank loan is easier.
All of these factors help in attracting more tenants, and as many experts claim, single-family homes are more likely to attract high-quality tenants because such tenants are more likely to stay in the rental property longer and treat it as their home. This, in turn, results in generating higher cash flow because tenants tend to pay for utility bills which will add to the real estate investor’s return. Overall, a single-family home is great for both tenants and real estate investors because it is cheaper and generates higher cash flow.
Appreciation is Higher
Since there is more demand and focus on single-family homes, these tend to appreciate more than multi-family homes. Lenders usually see the difference between the two when valuing them. Multi-family properties are valued based on the conditions of the real estate property and the rental income they generate; in the meantime, single-family homes are valued only based on supply and demand factors, and of course, demand is not lacking at all.
Disadvantages of a Single-Family Home
Maintenance of the Property
Generally, one of the biggest disadvantages of a single-family home is the costs of maintenance required to protect your investment property. This type of real estate property costs more to maintain than attached homes, and it also lacks the cost-sharing features that a homeowners association (HOA) provide, such as maintenance of shared walls, plumbing, and roof repairs, which are covered by the combined fees collected by the HOA. In short, what this means is that as a tenant, you’ll pay more to rent a house than you will an apartment or condo.
Financing the Property
Financing the purchase of multi-family homes is much easier than of single-family investment properties, as crazy as it sounds. Sure, the return on investment received by investing in single-family rentals tends to be higher than from other rental types; however, banks are more easily persuaded to give a mortgage to real estate investors for multi-family properties due to the risks being lower.
Investing in a single-family home can be riskier as there is only one tenant to pay the rent. If this tenant evacuates the rental property and the real estate investor can’t place a new tenant immediately, then the investor will have to pay the mortgage, taxes, utilities, etc. from his/her own pocket. On the other hand, if you own and rent out a few residential units (in a multi-family home) instead of just one (in a single-family home), you will have some rental income even if one or more of these housing units experience vacancy.
The bottom line is that when investing in a single-family home, real estate investors should take into consideration its pros and cons. In the end, it all comes down to each real estate investor’s preferences, budget, and which investment strategy or property type a person wants to deal with. For more information regarding real estate investments, you are more than welcome to visit Mashvisor to acquire the information you need to make your real estate investment decisions wiser, better, and more profitable.