One common type of residential real estate is single family homes. They happen to be the dominant property type in many major real estate markets across the US, including the Denver housing market, the Phoenix real estate market, and the Nashville real estate market. Because they make up such a large part of the housing inventory in the country, beginner real estate investors often look to them when buying their first investment property. Some expert real estate investors swear by single family rentals and always have a few in their portfolios. But are single family investment properties a good choice? Or are single family homes actually bad investments? We’ll explore this question in today’s blog.
What Are Single Family Homes?
Before we tackle the main question, let’s define single family homes. Single family properties, also known as single family rentals or SFRs, are a type of one-unit property. They are usually located in suburbs and rural areas. As such, SFRs typically come with front or backyards. Essentially, a single family home is what one might associate with the “white picket fence” American Dream. Single family properties come in all shapes and sizes. In fact, subsets of SFRs are common, with townhouses being the prime example.
Why Single Family Homes Are NOT a Bad Real Estate Investment
So, are single family homes bad investments? As the heading will tell you, absolutely not! As a matter of fact, to say that single family homes are a good investment is an understatement. Single family properties are terrific investments and can potentially be the best in the real estate business. There are 6 reasons why.
They Are in High Demand
A real estate investor needs to consider rental demand before making a move. And it just so happens that SFRs are some of the most sought-after properties nationwide. According to the National Rental Home Council, single family properties account for about 40% of the total rental market. The demand for this type of property is easy to understand when you consider its wide appeal. Working professionals, young families, and even students want to live in these one-unit properties. As a result, the single family rental market is experiencing a decline in vacancies. In the third quarter of 2019, for instance, SFR vacancies were 6.8%. This was a 0.3% decrease from the year prior. It’s also worth noting that the supply of single family homes is decreasing. So, there is no better time for investing in single family homes than now!
They Are Very Lucrative Investments
With high demand and decreasing supply, you would expect single family homes for rent to be profitable. This is exactly the case. On average, single family rental rates increase by 3% annually. Cash on cash returns and cap rates for single family homes are stable and high, which attracts many real estate investors. In addition, SFRs benefit from appreciation and various tax deductions. To maximize these many benefits, it is strongly recommended that investors who are buying single family homes use the buy-and-hold method.
They Are Affordable Properties
Single family rentals are also fairly affordable investments. While a decreasing supply and increasing demand typically lead to price increases, these properties remain relatively affordable. SFRs are, on average, cheaper than other real estate property types, such as multi-family properties. The reason why is that single family investments have less square footage and fewer units. Whenever there is a debate between single family vs multi-family properties, single family always wins the affordability argument. This is why they are often recommended to beginner real estate investors.
They Are Suitable for Many Rental Strategies
So far, single family homes have checked the main boxes for great real estate investments. They are in high demand, profitable, and affordable. SFRs also cover many secondary criteria as well. For starters, unlike other property types, single family properties are perfect for a variety of rental strategies. Typically, they are used for traditional, long-term renting. But they can also be used for short-term rentals, such as an Airbnb investment.
They Are Relatively Easy to Finance
With SFRs, the purchase process is relatively less tedious than it is with other real estate property types. This all has to do with the financing of single family rentals. As you would expect, the lower property prices of SFRs contribute to this. However, there’s more to it. Down payments, for example, tend to be lower for single family properties. And if you’re a beginner real estate investor, it will be easier to get a loan for single family homes than for large multi family homes.
They Require Less Hands-On Property Management Than Other Properties
Single family investment properties can be easier to manage than multi-family and other property types. By investing in single family homes, investors receive an inherent advantage simply because they are smaller. In addition, tenants tend to treat single family properties with more caution and respect compared to apartments. As a result, landlords and investors tend to spend less on management and repairs. The lower amount of managerial work does not necessarily force an investor to commit to professional property management versus self-management. The decision should be based on a variety of factors like whether or not you can afford to hire a professional or if you desire a passive income.
How to Find the Best Single Family Homes
All in all, single family homes are not bad investments. They are most definitely one of the best, if not the best, in all of residential real estate. So, are you interested in finding single family homes for sale? With Mashvisor’s investment property search app, you can find your ideal SFR in no time! Mashvisor uses predictive analytics and interactive capabilities to help you search for the best cash flow single family rental properties in any US housing market. To start your own search, CLICK HERE to sign up for a FREE trial with Mashvisor!