Why Single-Family Homes Are Great for New Investors

Are you thinking of buying a rental property? Being a landlord can be incredibly lucrative if you get certain things right. Among these is investing in the right property. But what exactly is “the right property” for a first-time investor?

Well, for starters, single-family homes are the safest bet. While every investment has its list of pros and cons, single-family homes tend to have the highest positive-to-negative ratios.
In today’s guide, we’ll go over why single-family homes are great for new investors.

Single Family Homes: What are they?

Before we can look into today’s topic, let’s first define what a single-family home is. It is a home with only one unit. More often than not, they are popular in rural areas or city suburbs.

Some of the most common features of a single-family home include:

• Front or back yards
• Sits on its own plot of land
• No shared walls to other dwellings
• May have basements, attics, or garages

They also come in a wide variety of shapes and sizes.

Why Should You Invest in a Single-Family Home?

1. Their Demand Among Prospective Tenants is High

One of the first things you should consider before investing in a property is the renter demand. You want to invest in a type of property that is always in high demand. Fortunately for you, single-family homes tend to be in demand all season.

According to a statistic by NHRC, single-family homes comprise up to forty percent of the entire rental housing market. This isn’t surprising considering that single-family homes appeal to a host of demographics.

With the high demand, it also means that you’ll enjoy high occupancy rates as a landlord. And the higher the occupancy rates, the better the return you’ll get on your investment.

2. They Have High Profit Margins

Profitability is another reason that makes single-family homes a popular option among savvy first-time investors.

According to RentPost.com, you can expect a single-family rental to give you a return on investment of between 8-12%. Additionally, single-family homes tend to have the highest appreciation rates of all rental investment types.

Overall, buying and running a single-family home is going to be favorable for a first-time investor.

3. Their Value Appreciates Relatively Fast

As already mentioned, single-family homes tend to have high appreciation rates. This is often due to their popularity in the market.

Appreciation means that a property investment’s value increases the longer an investor holds it. From a historical perspective, single-family homes tend to appreciate significantly faster than multi-family homes.

The value of a single-family home is based on the market demand and supply. On the other hand, multi-family homes get their value from market rents and conditions.

As such, for a multi-family home to appreciate, rents have to go up. And when rents do go up, home prices surge. But this doesn’t easily come by, as it is uncommon for rents to increase to the level of market rental rates.

As for single-family homes, however, they have more liquidity because of their high demand. Coupled with high appreciation rates, investors can make comparatively high profits.

4. They Yield Better Cash Flow Returns

When it comes to property investing, cash flow is king! Cash flow simply refers to the movement of money in and out of an investment or business.

There are two types of cash flow: positive and negative. Positive cash flow means that the cash inflows are greater than the cash outflows.

Essentially, it means that you’re left with money after subtracting your expenses. Negative cash flow, on the other hand, means that your expenditures are higher than your income.

Typically, single-family homes have fewer expenses than multi-family homes. For instance, when it comes to utility bills, landlords are usually responsible in multi-family homes. On the contrary, tenants are usually responsible for paying such bills in single-family homes.

5. The Buying Process is Easier

Buying a single-family home is comparatively easier than other investment property types, such as an apartment. The following are some of the reasons why that is:

• Financing a single-family home tends to be relatively cheaper than multi-family properties like townhomes or condos. This may effectively mean paying a smaller down payment and a potentially easier mortgage qualification.

• There are fewer complexities to the buying process. Usually, you’ll be dealing with one owner and one set of rules. However, with multi-family properties like townhomes and condos, you may have to deal with homeowner associations, approvals, and additional fees.

• Single-family homes are generally more common than multi-family unit properties. This means that you’ll have a smorgasbord of options to consider.

• The selling process tends to be comparatively easier than with multi-unit properties.

6. They are Easier to Manage

Being a landlord is never easy. Between screening prospective tenants, responding to maintenance requests, and keeping up with legal responsibilities, managing a property can become a time sink.

Luckily for you, it’s easier to manage a single-family home than a multi-family property. You may even be able to manage it yourself with a little bit of luck. After all, self-managing a property is quite attainable when dealing with a single unit.

7. They Attract High-Quality Tenants

Single-family homes tend to attract quality tenants for several reasons. For one, families with children or those seeking more privacy tend to opt for single-family homes. Having an own yard, driveway, and no shared walls often guarantees peace and quiet.

Two, single-family homes often attract people seeking stability rather than a temporary living situation. This may mean high occupancy rates for you.

And three, single-family homes usually come with attractive amenities. Such as, a garage, a yard, and even in-home laundry facilities. These can be an attractive perk for quality tenants.

Conclusion

As you can see, single-family homes are a great proposition for first-time investors. Broadly speaking, there is less financial risk, high profit potential, and manageable maintenance tasks.

Are you looking for expert help in buying and managing a rental property in the DC and Virginia area? Then, look no further than DRP Management. Get in touch now to learn more!