Updated June 26, 2021
Real estate investors have different preferences when it comes to investing in rental properties. Some only want single-family detached homes, others prefer duplexes or even multi-unit apartment buildings.
Although for many real estate investors, a single-family detached home equals investing in rental properties. A single family property is also a good option as real estate investing for beginners.
It is not uncommon for an investor to look beyond the rental property scenario and envision bigger and better things, more on that later.
There are pros and cons to investing in rental properties, particularly single-family detached homes. But first, let’s fully define what exactly is a single family detached property.
Single Family Property Investing Benefits
Typically used for owner occupancy, single-family properties are also valuable investment vehicles to generate income. Increasingly lower mortgage rates and increasingly fast rising rental rates is very advantageous for investors, especially real estate investing for beginners.
The most obvious advantage to investing in single-family properties is the cost. Single family properties can often be substantially less than multifamily properties, especially when considering additional expenses such as the down payment and maintenance.
Additionally, it is not uncommon for single family property rental agreements to require the tenant is responsible for all or most of the utilities. These agreements may require the tenant to take responsibility for landscaping and basic maintenance, making long-term maintenance costs significantly cheaper.
→ Higher Appreciation
Single-family property investments tend to appreciate more than multifamily properties. Multifamily properties are valued based on the incoming rents and the condition of the property. However, single-family properties are valued based on the supply of owner-occupied buyers. If a property is well-maintained in a thriving neighborhood, no worries– there will always be a demand for buyers.
→ Easier To Finance
Typically, financing a single-family property is easier than financing a multifamily property. The benefits of financing a single family property include: lower interest rates and higher loan-to-value (LTV) ratio.
→ Easier To Manage
With only one tenant, managing a single unit has its appeal. Although, you also have the option of using a professional property management company that is required in most municipalities to be licensed by the state real estate commission.
A single family detached property is a housing structure maintained and used as a single dwelling unit. The property sits on a single individual lot and does not share any walls with another property.
Ok, now that we got that covered, let’s get back to investing in a single family detached home.
You may be surprised to know this, but it’s rare for a single family home to produce cash flow, at least initially.
By the time mortgage debt and maintenance costs are calculated, if rental income produces a break-even point, most investors would consider that a success. Once tax advantages and periodic rental increases are considered, a positive cash flow may come in a few short years. And where else can you depreciate an appreciating asset and have someone else pay your mortgage? (We’ll discuss cash flow, appreciation, and depreciation in detail in another post.)
3 Steps To Estimate Rental Property Expenses
Although there may be some ongoing or future repairs to be made down the line, determine what immediate repairs should be completed.
2. Identify fixed expenses.
Identify expenses that you can expect to occur regularly. Although the cost of these expenses may fluctuate, you can these expenses to be paid at regular intervals. This may include: property insurance, property taxes, and rental management fees.
3. Identify variable expenses.
There are some expenses that rental property investors can anticipate to occur at some point in the future. Variable expenses are no straight forward to estimate, but should not be ignored. Examples may include: vacancy costs, unexpected repairs, etc. Experienced investors save a percentage of the monthly rental income for variable expenditures.
Of course, not everyone is cut out to be a landlord. Imagine clogged toilet calls at 2 a.m. (Yikes!) That can get pretty annoying. And we can’t overlook… sometimes tenants don’t pay and it can be difficult to evict them.
Vacancies can be costly, as well. For example, with a 10-unit apartment building, if one tenant moves out, that’s a 10% vacancy. With a single-family home, if that tenant moves out, that’s a 100% vacancy. And the lender is still going to want a 100% mortgage payment.
In addition, there’s no economy of scale with a single-family home. Fix a roof on a fourplex (a property that contains four separate apartments, also known as a quadplex or quadriplex), and you’ve re-roofed four units, so your costs are only 25% per unit. Fix a roof on a single-family home, and your costs are 100%.
Defining Residential Multi-Family Property Types
A residential multifamily property is any property that contains more than one self-contained unit.
Two individual residential self-contained units attached to each other, either next to each other or above each other like apartments. Duplexes have two separate entrances for each unit. This means each tenant would have their own entrance.
Fourplex or Quadriplex –
Four individual residential self-contained units attached.
Triplex –
Three individual residential self-contained units attached.
Investors in single-family detached homes aren’t always thinking about using the properties for rental income. There are many various invest opportunities. Consider the following:
2nd – Rental income can be used to carry the cost of the investment.
3rd – Strategic investors will use the profit and increased equity from one investment to finance the purchase of another, possibly larger investment.
Buy one rental property per year.
We will show you how.
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