As with any other investment, there are a few things you should know before jumping into real estate investing. One of the many ways to build wealth from your rentals is by purchasing single-family homes that can be rented out and generate additional income in rent while building equity over time.
Single family residences make up about half of all rental properties throughout the United States, making it an excellent starting point for new investors looking to get their feet wet in this space. The demand has been steadily increasing as well – not just domestically but internationally – which means now is an ideal time to invest because rates won’t stay low forever!
Are single family homes a good rental investment?
The short answer is yes, single family homes are a good rental investment; they’re the perfect place for new investors to start. These properties offer an immediate return on investment and the potential of long-term appreciation, but it’s crucial that you know what you’re getting into before diving in head first!
A single family rental is one out of every two homes rented today, which means there’s enormous demand (which generally translates to profit). And while things may have slowed down somewhat since 2012 when rents across America were increasing by 4% per year, they’ve still been going up steadily over time, according to RentJungle data. That makes investing easier because as rental rates go up, so does your income from renting out your property!
Is a single family home a better investment than multi family?
Both single and multi family rental homes are good investments. They definitely lead to a positive cash flow, but there’s some differences between them! Single family rentals have higher appreciation rates than the market as well as lower vacancy rates because they’re more affordable – making it easier for landlords to find suitable tenants.
However, renting out an apartment can be difficult at times when vacancies increase due to economic factors such as inflation or recession, which might cause prices in certain areas of town to skyrocket (or dive in).
Single family rental homes are an excellent investment for people who want to manage the property themselves without having to worry about hiring someone else. Single-family properties offer higher appreciation rates and lower monthly rent, making them ideal investments if you’re looking into building some cash flow.
On the other hand, multi family rentals provide high rents. Still, they have more vacancies than single families do, which means it’s going to depend on your landlord whether these types of investments work out well for you instead of being subject only to economic factors such as supply & demand.
Both single and multi-family rental homes are good investments that lead to either positive cash flow or even capital gains depending on what kind of home is purchased; however, there are differences between both types in terms of affordability.
Is a single family home better long-term investment than multi family?
Now, this is a complex question with many variables and no real right answer. However, if we take a step back to look at the bigger picture and check on all the pros and cons of investing in a single family home vs. investing in a multi family all those variables and complexities seem to become more translucent, revealing the clear advantages of single family homes have over multi family.
What are these advantages of a Single Family Home?
Single Family Homes are a much more affordable choice. Financing for this type of property it’s easier to get, you can also get to be picky on who you want as a tenant, and they’re much easier to get rid of (we’re talking about the property here). Let’s break these advantages down below:
A more accessible and more affordable choice
There’s a larger buying pool on Single Family Homes. It’s easier to find a proper one since you have a much more extensive inventory to choose from. This type of property can be cheaper, too, so you don’t need to have a ton of capital to start investing.
It’s been observed that single family rentals have grown at a faster rate than even single-family home sales since the housing crisis of 2007. The U.S. Census recently reported in their latest report, estimating that during this period which spans from 2007 to 2016, there was an increase in single rental homes by 31%.
Loans are more accessible
Usually, lenders will require a down payment of no less than 20% for residential real estate loans. For a SFH around $100,000, this translates to $20,000. When you think of multi family units, even a small building can easily reach $1 million (naturally, this will depend on the market, location and square footage, and many other factors).
And depending on the number of units on the Multi Family (varies a little, but the magic number usually’s 4), you might need to seek financing as a commercial real estate loan. And you guessed it, the down payment percentage for commercial real estate loans tends to be higher than residential real estate loans, around 25 to 30%. While maybe 5 to 10 percentual points might not look like a big difference, remember that a not too big Multifamily building can be found easily for 1 million dollars, so we’d be talking of a $250,0000 down capital investment. When compared to $20,000 for a single home residential loan down payment and well, the math is simple.
Easier to resale
So, we talked about how SFH are easier to get rid of, and well, it’s a bit obvious when you consider the much lower price. But it’s not only about price; it’s also about the demand and buyer’s pool. Single Family homes are attractive not only to real estate investors but to traditional home buyers who need a place for their families.
Forget about tenant turnover
Tenant turnover costs time and money. Every time someone moves out, you or your property manager has to coordinate cleaning, repairing damages, and general wear-and-tear on the unit they just left behind from their tenancy period of living there; marketing for a tenant who will be moving in as well screening applicants; not to mention that it’s also losing income while this vacant rental space sits still waiting for its next potential tenant. These are all problems a Multi Family has to deal with a lot.
With single-family rentals, you only have a single tenant to worry about, and turnover is less frequent. If the tenants move out of their home every 12 months or more often than that, then it means less time spent finding new renters for your property which can be an added stressor when life gets hectic. Multifamily properties also require constant work as there are always vacancies in between tenants coming and going, so this requires even more effort on your part if possible before turnover occurs again.
Should I buy a single or multi-family home?
This will depend on different factors like your investment strategy, capital, and market knowledge; for people who are not familiar with real estate investing or are just starting out on the real estate, SFR are their best choice. Like we’ve just mentioned above, the SFR market is growing; it has a much higher demand than Multi Family and has a higher liquidity. All of that generates a perfect scenario for people looking to invest in Real Estate with little money.
How to choose your first single family home investment property
There is an actual trend of DIY and buying nearby that’s proving to be successful on SFR properties. In 2017 Voyager Pacific was able to determine that an estimated 70% of rental properties were owned by investors who live within a one-hour drive from the property. This local investing approach may allow owners to self-manage their rentals while often scoring better deals on fixer-uppers and avoiding expensive fees for managing those homes.
The rise of third-party property management tools has made it easier for people who want to invest in real estate on their own or even homes they’ve always wanted.
With the help of proptech services and other technology, this method is becoming more popular than ever before! One significant advantage with “DIY & buy nearby strategy” over traditional rental-landlords models is that owners are often clued to what’s happening locally when living close by; there may be a few economic indicators you might not know about otherwise if you were just going through an agent.
Final Thoughts on Single Family Rentals as investment
So coming back to our first question, are single family homes a good investment?
The single-family rental sector can provide a wise alternative to the stock market during periods of financial instability. The following are some key reasons this strategy could prove valuable:
SFR properties have elements of both potential income and appreciation potential while also delivering returns that mirror those generated by stocks over time with less volatility according to Roofstock’s internal study based on data from the U.S. Census Bureau as well as S&P 500 return data and 10-year Treasury returns between 1992 and 2017.
You might want to consider SFR because it does not correlate with the stock market. For example, if you are nervous about the outlook for stocks in general, a property could be an alternative investment that is less risky than investing your money into a company.
If you loved the information above and want to learn more on SFR strategies or how Voyager Pacific can help you Build Wealth With Real Estate, get in contact with us today!
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