Single Family Homes: Advantages & Disadvantages

A single family home is the most sought-after type of home in the United States. You might think that only homebuyers go after this type of property. But renters, in fact, are attracted to single family homes as well. According to statista.com, more than 45 million people lived in rented single family houses in 2019. With the increasing population and a generally growing affordability issue, the demand for single family rentals is unlikely to die off any time soon. This means that this is a type of investment property that real estate investors should really consider.

To help you decide if single family properties are right for you, we’ll be taking a look at the advantages and disadvantages of this type of real estate investment today.

So, What Is a Single Family Home?

As the name suggests, a single family home is simply one unit that houses one family. This type of home is not connected to other residential structures. In other words, it is detached and sitting on its own parcel of land.

Before we look at the advantages and disadvantages, let us compare single family homes to other common property types.

Townhouse vs Single Family Home

You might find yourself torn between buying a single family home or a townhouse. Here are the factors to look at when making a comparison:

• Structural features – This is the main difference between these two types of investment properties. While a single family home is detached, a townhouse shares at least one wall with another home. This proximity to neighbors usually comes with decreased privacy and increased noise. This may turn off some renters and limit your pool.
• Homeowners association – Buying a townhouse usually involves joining a homeowners association that oversees communal operations. Single family homes rarely have HOA restrictions.
• Cost differences – A townhouse usually costs less than a detached home of the same location and size. However, townhouse landlords must pay HOA fees as well as extra temporary assessments.

Related: Is Buying a Townhouse a Good Investment in 2020?

Single Family Homes vs Multi Family Homes

Multi family homes are another common type of residential property. However, they consist of more than one unit. Common examples of multi family homes include duplexes, condos, and apartment complexes. We shall compare single family homes and multi family homes using the following components:

• Appreciation – Typically, single family homes appreciate faster than multi family homes due to the higher demand.
• Cash flow – While an investor can earn positive cash flow in the rental market for single family properties, multi family homes can earn more in some locations simply because they have more units.
• Turnover rate – People moving into single family units are likely to stay longer than those living in apartments or duplexes.

Related: Single Family vs. Multi Family Rentals: Which Is the Right Real Estate Investment for You?

What Are the Advantages and Disadvantages of a Single Family Home?

We have already seen some advantages such as privacy, no shared walls or floors, fast appreciation, and a lower vacancy rate. Here are a few other benefits of investing in single family homes:

• More space – Besides space in the front and back yard, single family properties are also likely to come with basement space, attic space, and garage space. This is a plus for potential renters, especially now, in the time of COVID-19.
• Less maintenance – Single family properties have fewer fixtures and appliances compared to a multiple family dwelling. This means maintenance is less time-consuming and expensive.

Related: Maintenance Myths for Beginner Landlords

• Diversification – Owning multiple single family homes allows you to invest across different neighborhoods. This is a good strategy for minimizing risk – if one neighborhood finds itself in a downturn, you can still make profits with the other single family homes in the other neighborhoods.
• Cash flow – While it’s true that multi family homes can earn more cash flow, that’s not to say that single family homes aren’t also cash flow properties. Just take a look at the rental income and cash on cash return you can earn in the US cities listed below.

Owning a single family home also comes with its share of downsides:

• Higher price – Single family homes for sale are usually more expensive compared to multi family properties (when looking at the cost per unit). However, you can find a great deal using Mashvisor’s tools.
• Vacancy means no rental income – When someone moves out of an apartment, the landlord will still have some income coming from other units. However, a vacancy in a single family means there will be no income until a new tenant is found.

The Best Cities for a Single Family Investment

Ready to enter the single family rental market after reviewing the pros and cons? Here are some of the best cities to invest in based on cash on cash return. These figures are derived from Mashvisor data for September 2020:

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#1. Detroit, Michigan

• Median Property Price: $123,259
• Price/Square Foot: $84
• Price to Rent Ratio: 11
• Traditional Rental Income: $927
• Traditional Cash on Cash Return: 7.7%

#2. Duluth, Minnesota

• Median Property Price: $308,018
• Price/Square Foot: $163
• Price to Rent Ratio: 13
• Traditional Rental Income: $1,961
• Traditional Cash on Cash Return: 7.3%

#3. Fort Pierce, Florida

• Median Property Price: $292,102
• Price/Square Foot: $155
• Price to Rent Ratio: 13
• Traditional Rental Income: $1,900
• Traditional Cash on Cash Return: 7.3%

#4. Muncie, Indiana

• Median Property Price: $157,160
• Price/Square Foot: $81
• Price to Rent Ratio: 12
• Traditional Rental Income: $1,080
• Traditional Cash on Cash Return: 7.2%

#5. Trenton, New Jersey

• Median Property Price: $200,162
• Price/Square Foot: $125
• Price to Rent Ratio: 10
• Traditional Rental Income: $1,660
• Traditional Cash on Cash Return: 7.0%

#6. Marion, Indiana

• Median Property Price: $146,117
• Price/Square Foot: $78
• Price to Rent Ratio: 13
• Traditional Rental Income: $956
• Traditional Cash on Cash Return: 6.9%

#7. Orlando, Florida

• Median Property Price: $414,687
• Price/Square Foot: $195
• Price to Rent Ratio: 19
• Traditional Rental Income: $1,804
• Traditional Cash on Cash Return: 6.8%

#8. Scranton, Pennsylvania

• Median Property Price: $136,137
• Price/Square Foot: $78
• Price to Rent Ratio: 10
• Traditional Rental Income: $1,181
• Traditional Cash on Cash Return: 6.6%

To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.

Besides cash on cash return, another important metric to consider is cap rates for single family homes. The cap rate will show you the annual rate of return you can expect to generate from your investment property. This will help you determine if a single family traditional or Airbnb investment property is overpriced or not. Get cap rates on Mashvisor.

Conclusion

A single family property is a great investment. Whether you choose to make it your first real estate investment or decide to buy a few single family units to diversify your portfolio, be sure to use Mashvisor to conduct your search and analysis.