Should I invest in single family homes for rent or multi family homes? That’s one of the most popular questions in the world of real estate investing. While both types of rental properties have many pluses and minuses, investing in single family properties seems to be the better choice in most cases. Some of the benefits of single family homes for rent over multi family properties from the viewpoint of a real estate investor and a landlord include:
- Lower price to buy
- Lower property tax and other fees
- Lower maintenance costs
- Higher profitability: better cash flow and more cash on cash return
- Easier and faster to rent out
- Dealing with one tenant only and no problems between tenants
- More reasonable tenants
- Lower tenant turnover rates
- No professional property management needed
- No real estate partnerships needed
- Less risky
- More real estate appreciation
- Easier and faster to sell, eventually…
So, once we’ve established that single family properties generally make the better investment properties, let’s take a look at the characteristics which the best single family homes for rent should have:
1. Positive cash flow
Regardless of what type of income property you are talking about, the most important feature – the one trait without which you should simply forget about buying this investment property – is positive cash flow. This holds true for single family homes for rent as well. It simply means that you will be making money from your real estate investment rather than breaking even or losing money.
To make sure that you will be able to generate positive cash flow from your house, you have to perform investment property analysis to get all the major figures. Alternatively, you could use Mashvisor’s rental property calculator which will provide you with all the numbers you need – for both traditional and Airbnb rental strategies – within a couple of minutes from the beginning of your search. Once you’ve made sure you have budgeted properly by including the expected rental income and all one-time and recurrent costs (which Mashvisor will greatly facilitate), check the final number: the cash flow should be positive. And the higher, the better.
Related: Why You Should Consult a Rental Property Calculator First
2. More return on investment than surrounding properties
Another major feature of any investment property – other than its type, size, and quality – is location. Many would go far enough to claim that location is actually everything in real estate investing. This means that you must get single family properties for rent which are more profitable not only than similar properties across the US but most importantly than similar real estate properties in the same location – city, neighborhood, street, etc. This calls for real estate market analysis in order to get the necessary comps. Once again, Mashvisor will be of indispensable help in this endeavor as it will save you lots of time and efforts through its investment property calculator. You can compare the price, expected rental income, cap rate, and CoC return for both traditional and Airbnb for a number of single family homes for rent (which you can rent out once you’ve purchased them).
3. Excellent location
The best single family homes for rent are placed in excellent locations. In real estate investing location though means a lot of things. So, such properties have to be located in a safe environment with easy access to jobs and good schools as well as shopping areas and health facilities because families are the most common tenants of single family homes for rent. So, the location has to be child-friendly. Moreover, the best single family homes for rent have to be in a state and a city where property taxes are not excessively high, where property insurance is good, and where legislation is advantageous to real estate investors and landlords. While any real estate investor hopes he/she won’t have to deal with bad tenants, major damages to his/her investment property, and eviction processes, it is better to be safe than sorry as a landlord.
Related: What Is Location in Real Estate Investing?
4. Good for traditional and Airbnb
While most single family homes for rent are likely to be rented out to long-term tenants (mostly working families with children), you as a real estate investor should never ever exclude the opportunity of renting out through Airbnb. Short-term rentals are on the rise across the US because of their convenience for guests and profitability for hosts. This means that you should choose a location where both families will be happy to live and travelers would be willing to stay. Moreover, you should avoid states and cities with prohibitive Airbnb legislation. Instead, choose places which allow Airbnb and do not require too many (unreasonable) fees.
5. Simple properties with cheap maintenance
While luxury rentals can generate a lot of cash flow, they are also very expensive to own and maintain. Instead, good single family homes for rent are rather simple, comfortable, and not unnecessarily complicated. While having a swimming pool might be attractive to some tenants, imagine how much time and money you will need to spend on fixing it if anything goes wrong with it. Similarly, nicely decorated walls might get you tenants with fine taste in internal decoration, but if these get destroyed by your tenants, you will need thousands of dollars to restore them. Thus, it is much better to have single family homes for rent that look nice and welcoming but which are easy to maintain than ones that are excessively lavish.
6. High real estate appreciation
In addition to having high cash flow from your income property, you should also aim at major real estate appreciation to make a profit in the long term, once you decide to sell your real estate property. Single family homes for rent are already the better option in this regard as they appreciate more than multi family properties. However, there are also major differences between them. In general, choose income properties from this type which are located in places that expect major infrastructural and economic developments in the coming years, where land is becoming particularly limited, and which are likely to be turning into major business hubs and tourist attractions in the decades ahead.
Related: Why You Should Invest in Single-Family Homes and Not Multi-Family Homes
Simply said, the best single family homes for rent are those which promise a lot of profit: through rental income, i.e., cash flow, and long-term appreciation. The 6 characteristics above provide excellent guidelines for new real estate investors to know what single family homes for rent to look for.