There are many different ways to invest in real estate, single-family homes come with various benefits that make them easier for investors.
If you are jumping into real estate investing for the first time, it can be intimidating. There are multiple things that you need to decide about your investing strategy before you get started. For example, you must figure out what type of properties you want to purchase. There is a range of different types of properties, houses, and buildings that can make sense as an investment.
Certain types of property are viewed as riskier than others. When it comes to comparing multi-family versus single-family homes, both have their pros and cons. Here we will take a look at several advantages that come with investing in a single-family home.
When you invest in a larger multi-family home, such as an apartment building or even an apartment complex, it comes with several management responsibilities to you as the investor. These responsibilities can also add up and become costly. With a single-family home, you will only have to do the upkeep of one yard, one HVAC system, and only a few toilets.
While with a multi-family property, you will have to keep up and pay for those things multiple times throughout the year. For example, if you own a large apartment complex, there may be backup generators within the building in case the power goes out. These require an entirely different set of maintenance skills to keep these running. Based on larger items like these alone, if you are getting into real estate investing for the first time, these can be a huge hassle to deal with.
With a single-family home, there are naturally fewer of these household items. They are much easier to manage when it comes to property maintenance. You typically pay less out of pocket for capital expenditures when owning an investment property with only one unit. If your property is recently renovated, you may not have to fix much at all as you rent it out.
Lastly, first-time real estate investors commonly manage their first investment themselves to save money and get their feet wet with experience. If your property is a large multi-unit, this will be a full-time job. Management of a single property is much more digestible and easier to handle starting out.
In many places across the United States, there are fewer compliances to meet with smaller buildings versus larger ones. (Note: this will vary depending on your city’s regulations and requirements.) A good example is a fire alarm system. In some cities, single-family rental properties are not required to have a fire alarm system in them. However, once the building is more than +2 units, the city requires it by law. Of course, this is not the end of the world.
However, it is another item that you need to worry about as a home buyer. Household items, such as a fire alarm system, can cost thousands of dollars depending on the current layout of your property. Oftentimes, new investors will not realize that they need items like that when they buy their first multi-family house. They could get fined by their city later on and accrue this unexpected expense early on.
We encourage any real estate investor to talk to their local city officials and real estate associations to determine what is required for their particular investment. The rules are different everywhere. If you plan on doing this for a long time, get accustomed to the local regulations regarding investment properties in your area.
Some would argue the opposite of this. It depends on your neighborhood, tenant market, and area.
However, if you are able to fill your single-family home with a specific type of tenant, you may experience less turnover. We are referring to families. Families with young children, or older parents, consider moving a huge hassle. It’s not as easy for them if they have kids to worry about or in-laws that are not as mobile. By filling your investment property with a tenant of this caliber, you can expect less turnover.
Vacancies are one of the largest monthly expenses that can hurt your cash flow. Owning a single-family rental property won’t experience as much larger apartment complexes. A common comparison is student housing, that many first-time real estate investors get shiny object syndrome over. While that real estate investing strategy works as well, you must factor in consistent tenant turnover each year as students move around.
While there are many different ways to invest in real estate, single-family houses come with various benefits that make the process easier to handle as an investor. Many real estate moguls grew their portfolios from ‘hitting singles’ and buying single-family properties that were great deals. You make money in real estate when you buy.
Make sure that regardless of your investing strategy, you purchase investments at a good price and account for your margins.