7 Reasons You Should Consider Investing in Single Family Homes

by | BiggerPockets.com

The real estate market has slowly recovered from the devastating losses in value suffered from the Great Recession. It’s not such a risk to invest anymore, and one could reasonably expect to make a profit in a short amount of time.

For a longer-term investment, you can buy housing and rent it out. Purchasing apartment buildings or duplex houses allows you to generate multiple income streams versus a single family home. But there are drawbacks to that, too. You have more people to deal with, lower rent payments, and increased maintenance.

If you’re just starting out in real estate investment, it’s better to choose a single family home. There are some plusses and minuses to either choice, but overall, I believe single family homes are the better investment. Here are a few things to think about.

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1. Higher Rent Payments

You can rent a house for much more money than an apartment. The other side of that is apartment buildings generate multiple rent checks. But those checks come with a lot of extra duties and responsibilities.

2. Faster Appreciation

Location is everything, and there are other factors to consider, but single family homes generally cost less and appreciate in value faster than multiple family units. It’s all just numbers on paper until you sell your house, but it is nice to see your investment grow when your appraised value rises.

Related: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t)

The investment isn’t as risky because you are spending less money than on an apartment building. Your mortgage will be more manageable and can be covered by your tenants’ monthly payments.

3. Utility Bills

When renting out a single family home, the tenants are usually responsible for all the utility payments. In an apartment building, the landlord often pays the water, sometimes even the gas and electricity. You won’t be subject to waste and abuse if the tenants are footing the bill.

4. Better Quality Tenants

There are good and bad people at every income level, but house renters tend to be more responsible than apartment dwellers. They take better care of their yards and are more likely to pay their rent on time.

People renting a house are more likely to stay longer. You won’t have to deal with turnover, empty space, or interviewing potential renters. People renting your house will consider it their home. They will treat it better, especially if they are considering buying it in the future.

In a single family home, you will only have to deal with one person or one family. In an apartment building, you have multiple personalities to deal with and they may not get along with each other. You will have to intervene in squabbles and complaints about each other. That’s a headache you should avoid.

5. Yard Space

Single family homes almost always have a yard where kids can play. Perhaps there is room for a garden or a play structure which makes the home more desirable to renters. People want yard space for their families. Plus, the more the kids play outside, the less likely they will be damaging your house.

6. Less Maintenance

Single family homes have only one furnace, one laundry machine and maybe two toilets. Multiple family dwellings have multiple appliances and fixtures which will need your attention. This can be expensive, frustrating, and time-consuming. Your tenants in a single family home might take care of some of these things themselves, too, and you will have fewer things to worry about.

landscaping-tips

Related: Single Family Homes vs. Multi-Unit Apartments: Which Investment is Right for You?

7. You Can Do It Yourself

You can easily manage one house on your own. If you rent out an apartment building, you will have many people and much more maintenance to deal with. You would have to hire a property manager to effectively deal with all the responsibilities and unwanted surprises that come with renting multiple units. Paying a property manager comes right out of your profits, so it’s something to consider when making an investment.

With one house you will have occasional repairs and be required to deal with them, but you can do it yourself. If you are handy, you can make minor repairs. If not, you can establish a relationship with professionals in your area so you can call on them when there is a problem.

You won’t need a property manager or a partner. You make all the decisions yourself, and you won’t have to split up your earnings.

Of course, there are no guarantees in the real estate market. You can have a poor experience renting to a single family or an enjoyable one running an apartment complex. But keep the above points in mind when considering investing in real estate. You can always venture into multiple units to diversify your portfolio but start with a single family home to get some experience and to see if it’s right for you. At the very least, you will have some stories to tell.

Do you invest in single family homes? Why or why not?

Let’s discuss below!

About Author

Anum Yoon

Anum Yoon is the founder and editor of the millennial money blog, Current on Currency.

14 Comments

  1. Dave Rav

    Some good pointers here. I think you hit most of the high points on SFR vs multifamily (even beginning with a duplex).

    Conversely, my first property was a duplex! And I did well with it those first few years, especially as I gained experience in the RE game. But what you say is true – more tenants, more moving parts, lower rents (thankfully, mine cash flowed awesomely at $400/mo), double the systems – furnace, appliances, plumbing, etc.

    Would def recommend the SFR for the investor “first time homebuyer”

  2. Lewis Christman

    One big point is that when selling a SFR you have a larger market because you have homeowners who will live there plus investors. On the down side I would pay less as an investor vs living there. The other point that I think is missed is where are you living? Do you own or rent yourself? Also with a vacancy you have the full mortgage to pay (plus taxes) with a SFR vs a fractional amount in a multi.

  3. Jinhee Park

    As a beginning investor i bought my first SFR rental property and got a tenant to move in right away and pay me rent. It’s giving me a positive cash flow and it’s in an area that appreciates by 12.3% annually. So far so good. I’m moving on to buying a 4-plex as my next income property.

  4. Stephen Shelton

    Some of these problems would be identical to someone with multiple SFRs (i.e. toilet problems), and one of the advantages didn’t make sense to me. You said that a SFRs tend to be cheaper and appreciate faster, but how can that be possible? Sooner or later that faster appreciation would put the average price of a SFR higher than a multi.

    I also wonder if a landlord can proactively avoid the problems inherent with strangers living close to each other. It seems to me that noise pollution is the biggest, so why not design sound deadening into the design?

    For example, I’ve heard of sound deadening drywall. It costs a pretty penny (5x normal cost) but if adding that to the adjoining walls of two units reduces or eliminates tenant squabbles and therefore tenant turnover isn’t the cost worth it? Just one month of lost rent caused by a tenant leaving abruptly due to a barking dog would probably cost the same.

    And in a duplex, would a hefty fence between the two units be a similar short term expense that could have long term gains?

  5. Lionel Li

    Agreed, SFRs are the investment vehicles that I use. The one benefit that stuck with me the most was the fact that SFR units are the ‘next step’ after apartment units. Everyone no matter what stage in life they’re in would prefer to have their own space without sharing walls. That helps with lower vacancy & the exit strategy.

    Obviously the location trumps the type of unit you own but, with all things equal without the debate of scaling it seems to be the safer investment especially for a beginning investor.

  6. Solomon Oh

    SFRs are definitely a good way to start off and I like how this article highlighted those points. Well written Anum!
    In terms of OPEX I imagine that houses might be a bit more maintenance than an apartment, but that might be offset by the additional cash flow by each house.

    Have other investors had success 1031 exchanging out from large portfolios of SFR (IE 10+ homes)? Any more difficult from transitioning from an apartment?

  7. Phillip Kim

    Good points. However I disagree I think starting with a duplex is a better idea and house hacking. Live in one unit rent the other and potentially have the entire mortgage paid for. This strategy minimizes you living expense and you learn all the ropes of landlording.

  8. John Murray

    I have about $3.6M worth of SF rentals. I’m a journey level guy and have a great inventory that is very flexible for different investment conduits. I have a ready made flip when I want to reno, sell and pay a minimum of capital gains (0% and 15%). I can halt portfolio income and have no earned income plus pass through paper losses to other income streams. The key is flexibility and minimize tax burden. No need to 1031.

  9. Terrance Niles

    I really like your insight on this ideology, and I have to say that I agree with all of you points. I would also like to add two more benefits. With SFR’s you have multiple exit strategies. You can sell on a lease option to a tenant buyer. If you collect a 3-5% option deposit then you can likely cover expenses if any unforeseen issues come up such as vacancies, evictions, maintenance, etc. Also, you can sell with owner financing to an owner occupant. The other added benefit is your ability to liquidate rather quickly. Your buyer pool is much larger for SFR’s than with apt. buildings. Something to think about if you ever ran into health or financial problems.

  10. daniel thomas

    My issue that I just cant seem to get past with single family homes is you are one water heater or furnace away from losing 8 months of income. I just cant get past that. For me it might not matter as Omaha (where I live) it is nearly impossible to find multifamily properties. To say we are oversaturated with agents, investors, and developers would be an overstatement. Tough for a guy like me trying to figure out and find his first property but nevertheless I trudge on.

  11. Khorae Olivier on

    I really like how you talked about single-family homes having much less maintenance than multiple family dwellings. We are considering buying a home and wanted to know if a condo or single family unit would be better. Thank you for the information about how having multiples of the same appliances can require more of our attention and be expensive and frustrating.

  12. Jessie Huffey

    “It’s not such a risk to invest anymore and one can reasonably expect to make a profit in a short amount of time” With such an inaccurate opening statement, you lost your credibility for the remainder of the article, which actually had some good points. For many people, it is a huge risk and they will likely lose money, not make it.

  13. I’m glad you mentioned that single family homes have a yard where kids can play. It is a really nice thing to have. I think it would be really great to have a family home with a backyard where my kids could play and have a good time.

  14. My brother has been thinking of getting a single family home to add to a few properties he rents out. I liked what you said about not having to pay the utility bills. This is definitely something that will interest him. He doesn’t really like that he has to pay utilities for his other properties, but I think that this will be something that won’t stress him out like his other properties.

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