Many moving pieces go into being a property investor, so all considerations should be made with careful thought. If you have been wondering if investing in single-family homes is the path for you, you’ll want to keep reading to learn more.
In this article, we’ll discuss all there is to know about investing in single-family homes, including the vast array of benefits that come with it.
Before you look into why single-family houses are your best investments, you need to understand your purpose for investing in the first place. If your reasoning lines up with the financial portfolio, you’ll quickly find that investing in single-family homes comes with many benefits, including:
Before you begin any investment, you want to have a clear answer as to why you’re investing in the first place. Understanding your investment goals will help you determine what the best investment property is for you, whether it be a single-family house or something else.
For example, if you are looking for equity or appreciation, the path of your investments will look very different from if you’re looking for cash flow alone. Alternatively, if you’re looking for some combination of appreciation and cash flow, you might look for solid cash on cash returns.
Ultimately, since you are the only one that can answer why you’re investing, you’ll need to take some time to find your motivating factors. Without having clear intent on your investment goals, you will not be able to determine whether purchasing a single-family home or a multi-family unit is the best option for your portfolio.
A single-family home refers to a property that is standalone on its own lot. Investing in this type of property means that you will purchase this single-family home to rent it out to a single tenant. Contrastingly, you can invest in multi-family homes or dwellings which would be rented out to multiple tenants.
People choose to invest in real estate for several different reasons, with some of the most significant being that real estate:
Especially for anyone new to the real estate investment world, single-family homes tend to be an excellent place to start because they are cheaper to purchase and can deliver immediate returns.
Single-family homes are known for being excellent real estate investments. In markets where there is a high demand for houses, single-family investment homes are some of the best purchases you can make. And, of course, if you happen to be lucky enough to be in an area where you can buy single-family homes at below-market rates, you’re in a great position financially.
With single-family homes, more opportunities arise in which you can purchase for below market value. There are several different reasons people sell single-family homes at lower purchase prices, but the two you see most frequently are:
Whatever the reason, purchasing a home for below market value means you start the process with equity. You’ll have to act quickly, but if you’re able to do so, you can get pretty great cash on cash return in the end.
Single-family homes resell favorably because there is a massive pool of potential buyers. Not only do you have buyers interested in the house to occupy it themselves, but you’ll also have investors looking to purchase.
Generally speaking, you can anticipate a good return at the end of your investment with a single-family home because there tends to be a higher demand in the sales market.
Qualifying for mortgages tends to be easier with single-family homes than with alternative investment property options. Since you have several different options for financing a single-family home, you can more than likely qualify for a conventional loan, especially as a first-time investor.
What makes it an even better situation for investors is that you can compare them and find one that fits your financial situation with so many loan products available. Several lower down payment options are available to those who seek loans through credit unions, banks, or other traditional lenders.
Single-family homes are more accessible to sell than other investment properties because they are less expensive. Additionally, there is a lower barrier to entry with a much wider pool of interested buyers, as previously mentioned.
While it’s evident that the purchase price of single-family homes will be lower than multi-family homes, there are more details to consider with expenses between the two. Things like down payments and the terms of financing are significantly different between the two products. Appraisals tend to be much more expensive for commercial properties than they are for single-family homes.
The single-family home is a much larger and more liquid market of real estate, in general than other investment property options.
Let’s not forget about managing the property once you own it as an investment property. Managing one single-family home will be much less complicated than a multi-family property, in which you will be responsible for collecting rents of multiple people, managing multiple leases, etc.
Another thing to consider is how tenants tend to treat their homes. Some landlords believe that tenants of single-family homes treat their homes better, more as their own than those who are a part of a multi-family unit.
So, once you’ve finalized your reasoning behind your investing, you’ll be able to decide if investing in single-family homes is what makes the best sense for your portfolio. You can anticipate many benefits if you do, with lower purchase prices, good resale, and higher liquidity being at the top.
Matthew is the CEO of Evernest. He is a student of the book Good to Great and is passionate about building the best property management company on the planet (and maybe even the universe if Elon Musk will hurry up). You can usually find Matthew at the baseball field with his son, at a dance recital with his daughter, or at his favorite restaurant with his wife, when he’s not in the office. And if you can’t find him in any of those places, it probably means he’s traveling.