Real estate investments are a time-honored vehicle for income and wealth generation and historically, single-family rental homes have provided the best returns in many ways. Whether you go it alone or use turnkey property management services to streamline your operations, detached properties can provide a rock-solid financial foundation with low risks.
Of all the property types to purchase and manage, single family homes are usually the easier because you’re dealing with just a few individuals as opposed to multi-family or commercial properties. The latter are particularly demanding.
Most tenants in office properties require a more complicated infrastructure that’s more prone to breakdowns inside and outside the building. Traffic is higher inside the building and out, and the liability requirements are substantially higher for the owner. You’re limited to licensed professionals to make repairs and improvements to meet your responsibility to the tenant.
If you’re considering investing in town homes or condos, it’s more difficult to compete with large apartment companies. They often use aggressive strategies to keep their occupancy rates up. These companies can offer incentives like deferring move-in costs for tenants, lowering their credit rating requirements, or reducing rents. Investing in a single family investment property shields you from these corporate entities because they seldom have holdings in the detached market.
Within the residential rental market, single family homes almost always have higher perceived value among renters. Families with children appreciate having a yard, extra play space, and more storage. Renters who offset the cost of housing with roommates need the square footage that a single family home often provides in the form of basements and garages.
Families, in particular, tend to be stable renters because the home meets their needs, as opposed to a multi-family unit where they may be cramped inside and out. Long term tenants are key to managing costs and optimizing profitability.
Homeowner associations (HOAs) govern all kinds of property, but none as frequently and intensely as they do attached properties. In town home or condo communities, their restrictions can be far-reaching, from window coverings to allowed items on patios and driveways.
An HOA board of directors can also prohibit owners from renting their units without a grandfathering clause. An investor-owner will have two basic options: Sell the unit or live in it.
It’s far less common for an HOA to prohibit single family rentals within a subdivision that has an HOA overlay. Such HOAs may have set architectural standards for the home’s exteriors and established prohibited items, like basketball hoops on garages, but their reach is much more limited with single-family homes.
It’s likely you’ll experience a better return on your investment with detached housing because there is more demand for single-family homes across the board. Attached homes provide an important niche for a smaller population segment because of their limitations, but a renter’s or homebuyer’s first choice is often a single-family unit.
Profits from a commercial office property may be greater in the short term, but over the long haul, the extra tenant improvements and maintenance they require can undercut profitability.
Single family homes have long been the go-to property for investors who want the greatest returns over the course of their ownership. The risks are lower than commercial and attached properties and with the help of a trusted property manager, investor involvement is minimal, yet the property offers the potential for high financial rewards.