Investing in real estate is one of the most lucrative strategies to build wealth and attain financial security. One of the best asset classes in real estate, especially for new investors, is single family properties. In this post, we shall explore the pros and cons of investing in a single family house, as well as the procedure for buying such properties.
What is a single family home?
A single family home is a building used and maintained as a single dwelling unit. It has the following characteristics:
- Land: A single family property is built on its own piece of land. In other words, the area around the home is for the owner’s private use.
- No common walls: This property is a stand-alone, detached house. This means that a single family home doesn’t share a roof or common walls with any other dwelling.
- Entrance and exit: A single family property has its own direct and private access to a street. This is unlike an apartment which has common lobbies or hallways.
- Utilities: This home has utilities that are not shared with any other residence. This applies to water, electricity, heating, and any other essential service.
- One owner: A single family income property is built as the residence for one household, person, or family.
Benefits of investing in a single family home
Here are some reasons why a single family residence makes a good investment:
1 – Lower purchase price
Depending on where you choose to invest, you can buy a single family rental home for less than $100,000. A lower buying price means a lower down payment. For example, it is easier to raise 20% of $100,000 than it is to raise 20% of $1 million. A lower price also means that you can finance the deal yourself. There will be no need to get into partnerships in order to raise the capital required.
2 – More financing options
There are more favorable financing alternatives for single family properties than for multi family homes for sale. Besides conventional home loans, you can also get financing from FHA loans, VA loans, home equity financing, hard money loans, or private money loans.
3 – More manageable size
A single family home for rent is smaller than a multi family home. It is, therefore, cheaper and easier to maintain. For example, if the heating in an apartment has a problem, it could cost thousands of dollars to fix. However, it might only cost a few hundred dollars to deal with a similar problem in a single family home. –
4 – A safer way to build your wealth
Many investors have gotten into deals that are beyond their financial means and management abilities. Not having enough money in the bank for unforeseen expenses and lacking the experience to manage a property can be a recipe for disaster. Start with one single family home and build your portfolio slowly. Once you’ve built enough equity in the home, you can then take a home equity loan and buy another property. Repeat the process several times and you will have a great portfolio within no time.
5 – Easier to resell
There is usually a huge demand for single family homes. This means that you can sell your home fast and at a higher price since there are many interested buyers. You can market your property to retail buyers or commercial investors. If you have a sizeable portfolio, you could choose to sell some units and keep others. Unlike an apartment complex which could take years to sell, you can find a buyer for a single family home within months.
6 – Low vacancy and tenant turnover
A single family home has low vacancy rates
Since single family homes sit on their own piece of land and don’t share walls, they offer residents more privacy compared to an attached family house. This is the reason why such properties have lower vacancy rates compared to multi family homes. Tenants are also attracted to amenities such as garage parking, yard space, and extra square footage. If the home is in a good neighborhood with great schools, parks, malls, and transport hubs, tenants are likely to stay even longer.
How to invest in a single family home
Here is a step-by-step guide for investing in a single family home:
1 – Get some education
If you are a beginner real estate investor, the first thing you need to do is learn the basics of real estate investing. The good news is that you don’t need to go to college to learn about investing in real estate. There are numerous real estate blogs, e-books, YouTube videos, and podcasts that provide information on a wide range of topics. Learn about basic real estate terms, local property laws, rental property types, real estate trends, and more. The more knowledge you have, the lower the chances of making mistakes.
Related: Ways to Get Your Real Estate Investing Education
2 – Choose your real estate strategy
Your choice of a real estate strategy should be determined by factors like budget, personal preferences, previous experience, and location. Here are the main real estate SFR investment strategies to consider:
- Buy and hold real estate: This strategy involves buying an investment property and holding on to it with the intention of selling in the future. Investors sell once the home’s value has appreciated enough.
- Fix and flip: If you want to make money in the short term, fix and flip would be an ideal strategy. This is where investors buy distressed homes below market value, make the necessary improvements and then sell them for a profit
- House wholesaling: This involves finding homes for sale, placing them under contract, and then selling them to buyers at a profit
- Traditional or Airbnb rentals: Traditional rentals are leased for a period of six months or more, while Airbnb rentals are rented out on a nightly basis
Do your research on each strategy and choose what works best for you.
Related: Rental Strategy 101: A Beginner Investor’s Guide
3 – Find a good housing market
Use the heatmap to find a profitable single family home
When it comes to real estate investing in a single family home, location is everything. Factors to consider when choosing a location include crime rate, population growth, infrastructure, access to amenities, job market, etc. Mashvisor’s real estate heatmap tool will help you identify the best performing neighborhoods in terms of Airbnb occupancy rate, cash on cash return, rental income, and listing price.
Related: Housing Market Cycle: When to Buy Rental Property
4 – Find single family homes for sale
Once you’ve identified an ideal neighborhood, it’s time to look for a single family home for sale. You can do this by hiring a real estate agent, checking listings in local newspapers, looking for “For Sale” signs, visiting real estate sites, or talking to friends and relatives.
Alternatively, you could try the Mashvisor Property Marketplace. On this platform, you will find a wide range of off market properties including foreclosures, bank-owned homes, short sales, and tenant-occupied rentals. You can narrow down your search for a single family home using filters like budget, miles, type of property, and rental strategy.
5 – Analyze investment properties
Finding a single house for sale is not enough. You need to conduct rental property analysis to establish the profitability potential of the investment property. Mashvisor’s investment property calculator will provide you with property data based on predictive analytics and machine-learning algorithms. This tool will calculate the expected rental property expenses, rental income, occupancy rate, cash flow, cap rate, and cash on cash return. It will also help you determine the optimal rental strategy for each single family house for rent.
Conclusion
Investing in single family homes for rent is a great way to make a good return on investment. If you do your due diligence and use Mashvisor real estate investment tools, you cannot go wrong.
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