Real Estate Investing
The Basics of Investing in Single-Family Rentals
Single-family rental homes can be one of the most lucrative investment opportunities available these days. They can generate a steady, passive income that can provide you with an excellent annual return. One of the reasons that single-family properties can be so lucrative is because many families who would own a home cannot do so due to the rising prices of homes and the higher lending rates, so they choose to rent for the time being.
Here, we will look at why single-family rental properties are an excellent real estate investment.
What is a single-family rental property?
Single-family homes are standalone houses that usually have a garage and a yard. Only one family lives on the property, and there are only accommodations for a single family to dwell there. When you compare single-family homes to other property types, there are a lot of advantages to them. These properties are much easier to purchase and manage than other property types, and the tenants often want to stay longer and take care of the property. You will also have a much wider selection of properties to choose from with a single-family home, especially if you are looking at properties in the suburbs near bigger cities.
Single-family rental properties are also much easier to sell than other property types, so if you decide you no longer want to maintain this investment, it is easy to get out of. If you develop a portfolio of single-family homes, you can also market that to sell more easily than trying to sell a multi-family home or apartment complex.
Now let’s take a look at some of the other types of properties out there and how they are different from single-family rentals.
Multi-family homes are buildings that can house multiple families under a single roof. This includes things like duplexes and apartment buildings. While these do provide more income than a single-family property, they require more work for managing tenants, and you have to have more property.
Apartment complexes have multiple buildings with apartments in them. Usually, they have more than five living spaces on the property. Lenders usually consider apartment complexes to be commercial properties, so they have a different financing process than a multi-family or single-family home.
Commercial properties are for businesses, not for anyone to live in, so they are a completely separate thing.
Financing Single-Family Rental Investments
One great thing about investing in single-family homes is that you can invest more capital in them than you currently have. When you invest in a single-family home, you can get a standard mortgage loan to purchase it or another type of mortgage loan, like the VA loan, if you are a veteran, and you just need a down payment and a good enough credit score to buy it. Once you purchase the home, you can begin collecting rent on it, which will allow you to regain your investment over time. Since you can invest in your single-family properties with just a down payment, you can potentially buy multiple properties at once, so you are collecting even more rent money and collecting a lucrative passive income.
While many lenders do offer decent financing options on multi-family homes and apartment buildings, the criteria for you to purchase the home is much stricter than it is for a single-family home. It is overall significantly easier to secure financing on a single-family home than a multi-family structure.
Single-Family Properties Have Lower Purchase Prices
While this may not be the case in every market, generally speaking, you can buy a single-family home for a much lower purchase price than other properties. Since they have a lower purchase price, you might be able to buy the entire thing on your own, too, without needing to find partners who will get a share in your investment income.
The costs of managing a single-family home are also less than managing another property type, so you will not be spending nearly as much on maintenance as you might when running another type of home. This is good for when you are just starting out, too, since you only have to work with a single tenant instead of a building full of them.
Comparing Single-Family Rentals to Stocks
The stock market generally tends to be more volatile than the real estate market. The two have historically done average similar annual returns, but the market for a single-family home has historically tended to be more stable than the stock market. If you are looking for a stable investment that will not take your money on a roller coaster ride, the single-family home can potentially be a much better investment.
Single-family rental homes can give you a steady income through monthly rent, and they will appreciate in value. They can also be fairly resistant to inflation. The average sales price of houses in the US increases at a faster rate than inflation does, so you can stay a step ahead of inflation. People generally say that your money is in a safer place when it is invested in a single-family home than it is when you invest in the stock market. Plus, you have a tangible asset with real estate investing.
But before you make any decisions, you should always obtain professional advice as is appropriate to protect your interests, including any legal, accounting, financial or other relevant advice to make an informed decisions based on your personal circumstances.
Single-Family Rental Cap Rate Calculator
This cap rate calculator helps you estimate the cap rate based on the value of a given single family rental property and the income from renting it. You can use it to decide whether a property's price is justified or determine the selling price of a property you own.
Single-Family Rentals Are a Potential Source of Additional Income
While some work is involved in owning a single-family rental property, it can be a worthwhile investment that provides you with another source of income. There is still some maintenance you will need to provide, as well as upkeep, but you only have to work with one set of tenants. The tenants are usually in charge of groundskeeping, such as mowing the lawn and watering the flowers. If you get a reliable tenant, you will have someone who will take good care of your property, and you can generate a steady, passive income.
When you have multiple properties, you can always hire a property manager to handle the upkeep and maintenance for you. While you will have to pay your property manager, they will take over communicating with tenants, collecting rent, and getting things repaired, making the investment completely stress-free.
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