Purchasing a full or partial interest in an investment property can yield different returns. There are many factors that are figured into the success ratios of a rental home. While there are several types of properties investors prefer, investing in single family homes does come with pros and some cons. Evaluating the good and the bad can prepare any investor for a long-term investment strategy.
4 Pros and Cons of Single Family Homes
1. Longer tenant leases
2. Resale value
3. Affordable property taxes
4. Reduced operating expenses
Tenants Rent Longer
Many single family properties are rented for one or more years compared to apartments or condos. Most renters who choose this housing option are usually saving to purchase a home. The longer leases can increase annual ROI for investors.
Holds Resale Value
A single family property that is well-maintained and located in a thriving neighborhood usually holds a higher resale value. Homes that are owned in neighborhoods with declining economies or high crime can lose value quickly.
Lower Property Taxes
Compared to apartment buildings or multi-family homes, a detached home can have lower property taxes each year. Commercial real estate is usually taxed differently and tax values can be higher compared to single family properties.
Lower Costs to Manage
Because only individuals or small families live inside single family homes, the costs to manage the properties can be lower on an annual basis. Tenants who take excellent care of properties can lessen the change of repairs being required with every lease renewal.
1. Vacancies reduce ROI
2. Possible HOA fees
3. Smaller lot
4. Traditionally higher price
ROI Decreases with Vacancies
Unlike multi-family properties that contribute more than one source of income, single family homes are vacant the moment that a lease agreement engines. Lost revenue and increased costs to find a new tenant can be common.
Payable HOA Fees
Not every house is included in a neighborhood that is without Homeowner Association (HOA) fees. Some upper class neighborhoods require monthly payment of fees for property owners. This adds to the expense of owning a property.
Decreased Land Size
The average single family property is less than 1/4 acre in most neighborhoods. Families that prefer renting homes with more land could be turned away by homes with smaller lots when seeking housing.
Higher Initial Sale Price
Single family homes generally hold a resale value regardless of the age of the property. Homes that are renovated prior to being placed on the market can have a higher sale price compared to those that need repair work at the time of purchase.
A percentage of investors start out with single family homes and then move on to commercial or multi-family properties as investments. Investors who are researching investment opportunities can decide what is the best investment to make based on their budget.