single family investing

Why You Should Invest in Single-Family Homes

It’s very crucial to secure your future and increase your wealth by making investments. An excellent way to achieve this is through real estate investing.

One major decision a real estate investor has to make is whether to go for a single-family home or multifamily home. Investors and property managers have always held diverse points of view on these two types of real estate on which is better.

While the choice of the best real estate investment is largely motivated by personal goals and preferences, many believe that investing in a single-family home is the better option. Let us find out why as we explore reasons you may want to invest in single family homes.

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Definition and features of a single-family home

A single-family home is a stand-alone residential structure, designed, maintained, and used as a single dwelling unit. In other words, it’s a house that one family lives in. Think of a traditional subdivision full of houses, these are single family houses.

Ordinary single-family homes on the market come in different architectural designs. They can be colonial, whether ranch, midcentury modern, or Cape Cod.

Single-family home has the following features:

  1. No common walls. The home is a detached property. It does not share a common wall or a roof with any other dwelling.
  2. Land. It is built on its parcel of land. The area around the building is for private use by the owner.
  3. Entrance and exit. It has its own private and direct access to a street.
  4. Utilities. This refers to electricity, water, heating, or any other essential service. Only one set of utilities can serve this home and cannot be shared in any way with any other residence.
  5. Sole owner. It is built as a residence for a single-family or household, whose owner has an undivided interest in the unit.
  6. One kitchen. This home has a single kitchen.

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Pros of Investing in a Single-Family Home

#1: Lower Cost

The initial cost of a single-family home is significantly lower than for a multi-family home. Sometimes it can be sold below market price depending on the circumstances of the owner.

It also means you can buy it yourself without the need for complicated business structures to raise equity capital.

#2: High appreciation

Appreciation is an increase in the value of an investment with time. Historically single-family homes appreciate faster than other types of rental properties.

This is because when on sale they are valued on the demand and supply, unlike multifamily homes which are valued on rent and market conditions.

#3: More liquidity

Because single-family homes are always on demand, they resale favorably. The process of selling is shorter and less stressful.

Therefore, as an investor, you have a chance of making long-term profits from selling a single-family home in the future.

#4: Easy maintenance and management.

Since you are dealing with one tenant it’s less tedious in terms of rent collection and maintenance checks. They also have minimum maintenance costs as compared to multifamily homes.

#5: Long-term and good quality tenants.

As an investor in single-family homes, you can be choosy about who to rent to. These homes mostly attract families or couples who stay longer and are financially stable.

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#6: Easier to Diversify.

Diversification means not putting all your eggs in one basket. It’s always wise to spread your risks as an investor.

The low initial capital cost allows you to diversify by investing your money in multiple properties rather than one large multi-family home.

#7: Easier to secure financing.

Financing a single-family home is a lot easier due to the low initial investment cost. You will have an easier time getting a mortgage and lower down payments.

Additionally, lenders are more likely to offer better interest rates.

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#8: More properties to choose from.

In most markets, there is a variety of single-family homes in terms of prizes, sizes, and styles. This gives investors a pool of options to select from.

Cons of investing in a single-family home

#1: Less cash flow

Unless you own several properties you will receive a handful of rent payments per month while multifamily homes simply have a lot of money flowing in.

#2: Slower ability to scale

If you are looking to build a big real estate portfolio, it’s extra work with single-family homes. This is because you deal with one house at a time, unlike in multifamily homes where you can scale up with one purchase.

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#3: Liquidity in full

In a situation where you have several properties, it’s hard to sell all of them quickly at once if needed. You would have to sell one by one.

#4: Market-dependent values

The valuation of single-family homes is dependent on the market forces,  that is demand and supply. It does not take into consideration what the property is generating in income.

Final thoughts

When investing in a single-family home, as a real estate investor you should take into consideration its advantages and disadvantages. In the end, it all comes down to your preferences.

If you’re just starting a real estate investment, single-family homes are your best choice. They’re easier to get into and require less cash, and you have more exit options should something go wrong.

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