Our blog post answers the question: “Why You Should Start Investing With Single-Family Rentals”. Learn and Earn with our post.
- People usually invest what they can afford;
- Making small investments is a good start for beginners; and
- Helps introduce novices to the basics of investing.
The same principles apply to real estate investments. Start small based on what you can afford and learn the basics before leveling up.
Learn Why Single-Family Homes are a Great Way to Start Your Real Estate Investments
What is a Single-Family Home Investment?
According to The Balance Small Business, single-family home investment is a condo unit or a house purchased with the intent to rent to a single tenant.
The Benefits of Single-Family Condo or Home Rentals
There are several benefits for buying single-family homes and condos to rent. Let’s explore the most important ones.
Advantages of Investing in Single-Family Rentals Over Multifamily
Around “67% of the housing stock” nationwide consist of single-family homes and condos providing more to choose from than multi-family buildings;
- Cap rates and returns are much higher in most markets for single-family rentals than multi-family;
- Buying a single-family home is more affordable than a multi-family building;
- Single-family homes sell faster than multifamily buildings; and
- Single-family home sellers have more ways to sell such as selling to the tenant, and owner-occupants, or another investor.
Best Benefits of Single-Family Rental Investments
Single-family rentals offer immediate benefits for first-time real estate investors like:
- Cash Flow – The passive monthly rental cash flow after expenses;
- Easier Financing – It’s easier to finance single-family homes than multi-family buildings.
- Appreciation – Property value appreciates faster with single-family homes. According to the Freddie Mac House Price Index (FMHPI) report, over the past 10 years average U.S. house prices increased by 10.82% annually;
- Inflation Hedge – The U.S. annual average rate of inflation is about 2%, according to the Federal Reserve;
- Tax Benefits – The IRS gives real estate investors many tax write-offs. For instance, the costs of owning and operating the rental, repairs, maintenance, insurance, taxes, and property management fees. Depreciation deductions and 1031 Tax-Deferred Exchanges also save rental investors lots of money; and
- Tenant Longevity – Also known as tenant “stickiness” amongst investors when single-family home tenants stay long term.
Buy and Hold Strategy
While some real estate investors fix and flip single-family homes and condos for quick profits, others choose to buy and hold.
Single-family homes or condos are easy to buy and hold for new investors. You can quickly fix it up and rent out to get immediate returns. Holding onto them brings long-term benefits contrary to a fast profit by fixing and flipping.
Single Family Homes and Condos Can Be Bought “Bite-Sized”
Use the “Bite-Size” investment strategy with single-family condos and homes giving you flexibility with your affordability and equity. Instead of investing big into an apartment building, you can buy separate condo units or houses at prices you can afford.
Should You Buy a Rental Condo or Home?
This is a good time to look at the pros and cons of buying a home or a condo.
Learn about the pros and cons of buying a condo or a home by viewing this recent blog post: “Should I Purchase a Condo or a Home?”.
Here are the pros and cons of buying a home or a condo.
Buying a condo benefits include:
- Condo units cost less than a home;
- Condos incur less exterior maintenance and repair costs;
- A condo community provides more amenities than a home;
- Condos are usually found in more convenient locations; and
- More social connections with neighbors in the same community.
Contrary, a condo carries greater risks than a home like:
- Condos are more difficult to finance a purchase than homes;
- Homes appreciate better than condos; and
- Homeowners Association (HOA) fees add an extra expense.
On the other hand, buying a home entails these benefits:
- You own the land;
- A home can grow with additions;
- You enjoy greater self-determination and expression than with a condo;
- A home accommodates life changes better than a condo; and
- You can sell a home easier than a condo.
The Benefits of Investing in Single-Family versus Multifamily Rentals
In 2021, many real estate investment experts recommend investing in single-family rentals than in multi-family rentals. Even institutional investors are investing billions into single-family rental homes.
Recently, we compared multi-family with single-family rentals showing the pros and cons of each investment. Check out our: “Should You Invest In Single-Family Or Multifamily Rentals?”
We concluded that it mainly depended on your investment goals. While multifamily rentals offer greater cash flow, single-family homes offer greater appreciation.
Back to our original suggestion, you should only invest in what you can afford and then learn the investment basics before expanding.
Learn the Basics of Rental Investments
Let’s look at the basics of rental investments to help you with buying and financing a rental property.
How to Find Good Rental Properties
Our broker, Big Block Realty, recently published a blog post explaining: “How to Find a Growing Real Estate Market”. It tells you to look for a location with:
- Diverse population;
- Strong job growth;
- Low vacancy rates;
- High consumer confidence; and
- Strong demands for homes that stay that way.
Buying Rental Properties
You need to know all the expenses you must pay when buying a rental property. Missing one upfront or ongoing expense can cause you to make inaccurate estimates of the costs and income potential.
The list of expenses is long and includes these common ones:
- Down payment;
- Financing fees;
- Mortgage costs; and
- Escrow closing costs.
Check out the full explanation of typical real estate closings costs in our recent blog post titled, “How To Understand California Escrow Costs 2021“.
Also, view its follow-up titled, “How To Lower California Escrow Closing Costs“.
Rental Property Financing
Financing income property becomes trickier than financing your primary residence home. For instance, your down payment will be larger, expect to pay 20% to 25%.
Other financing options exist for income properties. For instance, “seller financing” when you convince the owner to finance your purchase based on the estimated rents.
In addition, you can raise the down payment by taking out a home equity loan or an equity line of credit on your primary residence (or other properties) known as a “HELOC“. Investopedia gives a good explanation of these two here.
Similarly, you can use a real estate crowdfunding platform to raise the funds to make the purchase.
Why You Should Start Investing With Single-Family Rentals – Conclusion
Our answer to the question, “Why You Should Start Investing With Single-Family Rentals“ boils down to:
You should only invest in what you can afford and then learn the investment basics before expanding.
Let’s begin with summarizing the advantages of single-family rentals over multi-family:
- In 2021, nearly 67% of the U.S. housing market consists of single-family condo units and homes while multi-family buildings offer a lower supply;
- Higher Cap rates and returns for single-family rentals;
- Affordability of single-family properties than multi-family buildings;
- Faster sales for single-family homes; and
- More ways for a single-family home to sell.
Benefits of single-family rental investments include:
- Cash Flow;
- Easier Financing;
- Inflation Hedge;
- Tax Benefits; and
- Tenant Longevity.
Are You Cut out to Be a Landlord?
Are you good at repairing drywall? Know your way around a toolbox? Unclogging toilets smell good to you? Yes, you can call a stranger to do it for you. Or, you can call your trustworthy professional property management company.
Tip: If you’re not the handy person type and don’t have lots of time and spare cash being a landlord may not fit you. Hire a professional property management company.
WeLease Property Management trained staff and reliable contractors take care of all types of rental properties in San Diego County. We got your back!
For example, our posts include money-saving ideas and tips for landlords like:
- How to Avoid Your First Real Estate Investment Mistakes;
- Should You Invest in Older or Newer Rentals?; and
- How To Get Started As A Landlord.
Contact us to learn about all our property management services to take the stress off, save you time and money in the greater San Diego region.
Steven Rich, MBA – Guest Blogger
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