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3. How to invest in single family rental homes ?

Pros and Cons of Single-family Home Rentals Over Condos, Townhomes, and Duplexes

Pros

In addition to “tenant stickiness,” there are other advantages to single-family home investing.

  • Higher market appreciation potential — In many areas of the country, single-family homes benefit from higher long-term market appreciation than other housing types. Appreciation is one of the biggest benefits of real estate investing and vital to wealth creation from real estate holdings.
  • Monthly cost savings — The monthly cost of owning and renting out a single-family home can be less, as there are no monthly condo fees. And HOA fees tend to be less common and lower on single-family homes (although these things vary and depend on local market dynamics, of course).
  • Easier to manage — It’s much simpler to manage one property housing one family paying $3,000 a month than it is to manage three separate smaller units, each with one tenant paying $1,000 a month.
  • Easier to get financing — It’s fairly easy to get financing on a single-family rental. Bankers understand them. When you get into multi-unit buildings, it gets a little more complicated. That makes it more difficult and expensive to get financing.
  • Longer leases are more common and can lower risk and expenses substantially — Tenant turnover costs time and money. Cleaning, repainting, interviewing, and placing new tenants can be expensive and result in several months of no rent collection. Families seeking single-family rentals often want to sign extended leases. This reduces the cost and cash-flow disruptions caused by vacancies.

Cons

But there are also a few disadvantages to owning single-family rental properties.

  • More maintenance — Multifamily housing units might share the same roof and walls, but a single-family home has four exterior walls and a full roof to maintain.
  • You may incur higher capital expenses — If the home is old and not connected to public water and sewer, you will need to maintain the well and septic.
  • Potentially higher risk — Depending on a single tenant to pay $3,000 a month carries a potentially higher cash-flow risk than the chance that three tenants paying $1,000 a month will all skip a rent payment at the same time.

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