There is an old debate among real estate investors: what is the best rental property? While there are a few different options, each having its pros and cons, any real estate investor will find the most benefits with single family homes.
Especially for a new real estate investor, single family homes are the best path for making money with real estate as they require much less effort and time than any other kind of investment property. Let’s get into the reasons why single family homes are the best rental properties.
Overall, Less Expensive
When searching for real estate investments, compare the prices of the different types you find. Generally, you will find that single family homes are less expensive. One reason is that they are smaller, versus multi family homes, which take up more land and space. Another reason has to do with how they are valued. This point will be explained below, as the way single family homes are valued is a great benefit in itself. Because of this, you might find that you have the ability to pay in cash, rather than turning to a bank loan, depending on your financial situation, of course.
When trying to compare prices for single family homes, Mashvisor will make it much easier for you. You can look at multiple investment properties and find the best location and price. Mashvisor will help you find some of the best rental properties out there.
Diversify Your Investment Portfolio
While knowing you’ll be investing less money in single family homes is already great, a side you may not have considered is your real estate investment portfolio. Let’s say you have $300,000 you’re looking to invest. Instead of putting all of this capital into one kind of investment, you can spread it across two or maybe even three single family homes. This is a better idea because in case one turns out to be a mistake or a dud, you’ll have other real estate investments to fall back on.
Besides the initial price, you’ll find that single family homes cost less in terms of maintenance. One reason is no costs for a common area, like with apartment buildings. Tenants of single family homes are usually responsible for paying utilities and landscaping costs as well. You’ll even find that you pay less in repairs because tenants tend to take better care of single family homes than they do with apartments.
Greater Tax Deductions
Based on property valuation, income, and percentage of tenants, single family homes also enjoy lower property taxes as well as lower insurance rates. Overall, this lowers annual expenses for the rental property which a real estate investor has to take into account before investing.
You also have the benefit of shorter years of depreciation for taxes on single family homes. You can claim depreciation for 27 and a half years compared to 39 years for commercial properties (like multi family homes with more than four housing units). What this means is that you’ll be seeing greater cash flow from single family homes.
Easy to Finance
Lenders tend to see single family homes as a low risk investment. This is because they have stability in the real estate market, which usually goes unaffected when the market changes or takes a hit. They also tend to hold value, making them a low risk investment. Because of this, lenders are more willing to provide the financing for this kind of real estate investment. A real estate investor will receive lower down payments, lower interest rates, no balloon payment, and even higher loan-to-value ratios when trying to finance single family homes.
Higher Property Value
The value of single family homes is not based on the rental income they produce. A real estate investor might find it harder to raise the overall value of other kinds of real estate investments because it would involve finding new tenants or adding more housing units to raise the rental income. For single family homes, sometimes all it takes is a few repairs, and the value is increased. If the location of the property is desired by buyers, then the value can automatically go up for single family homes.
If you do your research, you can find an area where single family homes are valued low but have high rent which will make a great deal. Sometimes, owner-occupiers value the homes lower because they just want to sell the home as opposed to a real estate investor who is looking to get a great return on his/her real estate investment. So, you’ll buy the house for a lower value but be able to put it up for sale with its higher, true value.
Appreciation can also be higher for single family homes. This, again, is because the value is not directly tied to the rental income. Instead, it can appreciate because of the supply and demand by owner-occupiers. Homeownership rates are low, so the demand tends to be high for single family homes.
Easy to Manage
Being a landlord of single family homes is much easier than of any other type of investment property. This is in part because the turnover is much lower. If you manage to find good tenants, they tend to stay longer. Reasons for low vacancy rates vary. It’s possible that tenants are saving for their own home, which takes time. Tenants tend to switch from apartments to single family homes, not the other way around. Good tenants even begin to view single family home rentals as their own homes, so they stay longer. Because the turnover is low, all the fees that come along with it become less as well.
Because good tenants see single family homes as their home, they take better care of them. This means that they cause less damage to the rental property, reducing the need for repairs. They take care of their lawns and their backyards. Good tenants in single family homes even tend to pay rent on time, offering a steady rental income. Being a landlord with these types of rental properties can be a breeze.
Another thing you would benefit from is not having to worry about how tenants interact with one another. When you’re dealing with multiple tenants, they can have issues, disturb one another, or even downright hate each other. This can cause an awful headache for a landlord and even lead to police involvement.
Easy to Sell
Besides the fact that single family homes are generally in high demand in the real estate market, you also have different kinds of buyers. Not only will other real estate investors be interested in buying single family homes, but owner-occupiers will also be putting up offers for your investment property when you choose to sell.
You may also manage to get paid fully in cash upon reselling. This is because there are more loan options for single family homes simply because the government has an interest in making homes more purchasable for everyday buyers.
As any real estate investor can see, single family homes are the best rental properties by far. They are the easiest to get into in addition to being the easiest to exit from if needed, making them a low risk investment. You’ll be making money with little effort in property management and your expenses will be low. There isn’t much else that needs to be said: if you’re wondering what your next investment property should be, go for a single family home for sure!
For finding the best single family homes for investments all around the US, look up Mashvisor!