For decades, investors have built fortunes from owning single family homes. Single family homes tend to experience stronger appreciation than multi-family investments and rent better head to head. For most renters, a single family home is more desirable because it offers the space and privacy that a multi-family can not and often are willing to pay more for it.
So if a single family home rents better and usually commands more in rent, why not buy single family homes every time? Well, unless significant down payments are made, single family homes do not tend to cash flow as strong as a multi family due to a higher price per square foot. Also, in general, single family homes command a lot more hands on attention than multi-family investments.
Hands on investor
The hands on investor who is very selective and hires the right property management company (if they do not live near by, which is usually the case) can do very well for themselves and enjoy the monthly cash flow. Investors who are too busy, or do not want to be hands on in the process usually do not do very well. Many investors have had to learn the hard way that hoping quality renters come and stay does not work!
Successful single family home owners have learned that good tenant relationship and up keep of their property will help lead to a profitable endeavor. There is a fine balance between making an investment property too nice and not getting a return on your money, but also having a low rent place that will be difficult to lease in a competitive market. The best way we have found when evaluating a rental property is to put yourself in the tenants’ shoes. Sounds like common sense, but often investors will choose better home amenities or lower priced properties because they think it will cash flow better, instead of purchasing a property for more money where they would actually want to live.
When purchased correctly, single family homes can be a great way to build wealth and a cash flowing real estate portfolio. The key to success is to fully evaluate your prospective property and compare it to other rental properties in the market to ensure that your property will be a desirable rental and also attract the type of tenant that you feel comfortable working with.