Ever since the housing market crash of 2008, real estate investors have been hesitant to put their hard earned cash back into single-family homes. Afterall, the risk of relying on a single tenant can seem far too high when you consider just how many experts are predicting another crash in the coming years.
However, duplexes and apartment complexes come with their own set of drawbacks and challenges and they are far from a beginner friendly investment. Here are just a few of our top reasons that you should invest in a single family home (and a few reasons why you shouldn’t).
Let’s dive in.
1. You Can Charge More for Rent
Plain and simple. The first and, one of the most important, reasons that you should invest in a single family home is that it provides greater profit margins and larger monthly checks. If you are renting a house, you can reasonably charge 20-40% more than you would for an apartment of the same size.
Sure, apartments and duplexes allow you to collect monthly checks from multiple tenants, however, they also require significantly more upkeep and maintenance than a single family home.
Speaking of maintenance.
2. They’re Easier to Maintain and Manage
Single-family homes are by far the easiest property type to manage and maintain. In an apartment or duplex, an issue with the plumbing or air conditioning unit can affect multiple tenants and require huge sums of money to fix. In a single family home, these issues are isolated to one family and typically cost less to remedy.
Single-family homes are also easier for property managers to take care of. Apartment complexes breed conflict. Quarrels between tenants are commonplace and you are required to inspect and maintain dozens of units instead of easily managing a single home.
3. They Attract Higher Quality Tenants
The quality of your tenants can make or break your real estate investing experience. When you own an apartment complex, you will naturally attract a different, dare I say, lower caliber tenant than you would with a single family home. The types of people who rent single-family homes tend to be hardworking married professionals with one or two children. This type of tenant is far less likely to cause issues than say a recent college graduate renting out his first apartment.
The barrier to entry (namely the price) with single-family homes provides a natural filter that will keep the bad tenants out and the good tenants in.
4. Single Family Homes are Inexpensive and Easy to Finance
One of the biggest reasons that single-family homes are a great investment strategy for the beginning real estate investor is that they are typically inexpensive and easy to finance. Depending on your area, duplexes and complexes will typically cost 2-3X what a similar single-family home would.
For example, you could buy 2-3 single family homes at $125,000 and generate almost immediate cash flow instead of waiting to save up the $375,000 for a complex or get approved for such a large loan.
The banks are also much faster to loan money for single-family homes than they are duplexes or complexes. The risk on their part is significantly reduced making it easier for you to acquire the funding and generate cash flow.
5. Appreciation Is Faster
Historically speaking, single-family homes appreciate much faster than duplexes or complexes. The reason for this is simple. Multifamily homes are valued based on the number of tenants, price of the rent, and condition of the property. Whereas single-family homes are valued only by the supply and demand of local buyers.
6. You Don’t Have to Pay for Utilities
Depending on the standards in your particular market, you might be expected to cover gas, electric, and water for an apartment complex or multifamily residence. However, when you are renting out a single family home, the burden of paying the monthly utilities usually falls on the renter. This prevents you from having to pay for your tenant’s wasteful habits and allows you to keep more money in your pocket each month.
7. You Can Often Find Deeply Discounted Single Family Homes
One of the perks of purchasing a single family home is that you can often find them for 30-70% lower than the average market value. If you have your ear to the ground or have developed a good relationship with a local real estate wholesaler there are likely hundreds of highly motivated sellers in your area.
Whether they recently went through a divorce or job relocation, there are countless reasons why someone in your area would be willing to sell a home (with high equity) for significantly lower than the market price. If you are willing to pay in cash and be patient, you can easily find homes for quarters on the dollar.
3 Reasons You Shouldn’t Invest in Single Family Homes
1. You are Trying to Get Rich Quick
I hate to burst your bubble but becoming rich through real estate takes time. You aren’t going to become a millionaire overnight with single-family homes and they are not the best real estate investing method for quick cash flow.
2. You Aren’t Willing to Get Your Hands Dirty
Single-family homes, especially deeply discounted homes, typically require a lot of TLC. If you aren’t willing to spend a significant amount of time or money renovating the house yourself or hiring someone to do it, then you should probably stick to investing in well-established duplexes and complexes.
3. You Prefer the Convenience of Multifamily Homes
When you invest in single family homes, you will likely have properties all across your city in different subdivisions and areas. This can make managing and maintaining these properties a little bit hectic. Multifamily homes can be a far more convenient investment if you stick to one area and have a single person managing all 12-24 units.
Single-family homes are one of our favorite investments. If you are just getting started in the real estate game and want a fantastic long-term strategy to build your wealth then you need look no further. If you are interested in getting started with real estate investing (of any kind) be sure to send us an email so that we can help guide you on your journey.