Single Family Homes are the Best Properties for Long Term Rentals

Rental properties are the absolute best investment for wealth and cash flow growth.There are many ways to invest in Real Estate, from buying shares of a REIT, to purchasing or developing large commercial projects.  I invest in single family homes, because they give me great returns, are easy to find and easy to manage. I have 7 single family rental properties and each one is giving me over 24% cash on cash returns.  I go through exactly how I get these returns in my complete guide to purchasing long-term rentals. 

Buy right

The main reason I get great returns on single family rentals, is I only buy properties that are below market value.  Good deals are hard to find, but they are out there if you know how to find them.  I try to buy properties at 70% to 80% of market value.  Usually, the properties are cheap because they need work or have very motivated sellers.  Not only do I make money as soon as I close, because I bought the property below market, I almost always add value through repairs or improvements as well.

I have purchased rental properties that were REOs, short sales, fair market sales and estate sales.  There are many ways to purchase properties at below market value.  Some of the keys to buying properties at below market value are making offers quickly, having cash to purchase properties or strong financing and having a good reputation for closing on properties.

I wrote an article here, on exactly how I am able to find single family properties at below market prices. 

Multiple unit complexes

In my area we do not have a lot of multi-family housing, so single family homes are much easier to find.  I can find much better deals on single family homes than I can on larger multi unit projects, simply due to supply and demand.  I know in some areas, multi-unit houses produces great returns, but where I am at, I can actually make a better cash on cash return by purchasing, and renting out single family homes then I can with multi family.

There is no way I could make over 20% cash on cash returns with multi-family, I have to pay to high of a purchase price for multi family.  If I were to buy single family properties at market value, I couldn’t make 20% either, but there are so many more single family properties out there, that there is a much better chance of getting a great deal on single family.

Easier to manage

I feel single family rentals are easier to manage than larger complexes.  With a single family rental I do not have to pay any utilities, the tenants pay them all.  In multi-unit properties the landlord is usually responsible for the water and sometimes electric and gas as well.  Many tenants feel a single family rental is their own home, not just an apartment or place to live. They usually take good care of the property and even fix and repair items themselves.  They also tend to stay longer and renew their leases year after year.  My parents have had a single family house rented to the same family for 12 years!

Less expensive to buy

Single family homes are usually less expensive to buy than large complexes with multiple units.  The large complexes bring in more rent, but because of that they are much more expensive to buy.  With a single family home the down payment and repairs are usually less than multi unit properties and the maintenance is usually less as well.

Appreciation

Single family homes historically appreciate more than multi-unit properties.  Multi-unit properties arte valued on the rents coming in and condition, while most single family homes are valued on supply and demand of owner occupied buyers.  If rents go up in an area, then multi-family housing prices will rise as well, but only if the rents are raised to meet market rental rates.

Conclusion

I am going to keep buying single family homes because I can get better deals, I can manage them easier, they appreciate more and they require less cash to purchase.  In some areas it may make more sense to buy multi-family housing, depending on what the returns are.  If you are interested in multi-family hosing, check out Ben Leboyovich’s cash flow university.

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4 responses to “Single Family Homes are the Best Properties for Long Term Rentals

  1. How does your method compare to investing in REITs?

    • To clarify, what are some of the pros and cons of buying your own rental versus buying into a larger trust?

      • Thanks for the question.
        There are a number of reasons I prefer investing in my own properties instead of a trust.
        I have control over my investment when buying and renting my own propeties. With a REIT you can choose the focus like health care facilities, commercial malls or large apartment buildings but that is where your control ends. The rest you have to trust the managers know what they are doing and will invest well.
        With a REIT they have hundreds of millions or billions of dollars to invest. Simply due to the scale they operate on their returns will not be as good as mine. One of the biggest advantages I have is being able to find deals. I think single family homes are the best deal in my area. It is impossible for a REIT to buy enough single family properties at the prices I can.
        I get better tax advantages buying real estate due to depreciating the structure.
        I can refinance a rental property and take money out.
        I get a monthly cash flow from my rentals which is a much higher return than any REITs dividends may pay out.
        I can add value to my rentals by fixing them up or improving them.
        When I buy homes at below market I instantly increase my equity, try finding someone to sell you a REIT at 20% below market.

  2. Pingback: Owner Occupants Guide to Purchasing HUD Homes | Invest Four More

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