Purchasing a rental property as a new investor can be as exciting as it is daunting. While you may be eager to get started, it can also be tricky to know what kind of property to invest in first.
In our opinion, the smartest investment for any new rental property owner is a single-family home. Although multi-family properties can be a great investment, too, single-family homes make the best starting point because the initial investment is much smaller.
Keep watching to see why we recommend these properties for those who are just starting to build a real estate portfolio.
1. You Can Charge More for Rent
When it comes to renting out a property, you will always be able to charge more money per square foot for a single-family home than a standard apartment.
While apartment buildings may generate a larger number of checks because you will get to collect rent from multiple units, these properties also come with a greater amount of expenses and responsibilities, or come furnished.
A single-family home will come with fewer expenses and a higher rent. In fact, rent for single-family homes tends to go up 3% every year, making it a safer and more lucrative kind of rental property to start out with.
2. You Will Attract Long-Term Tenants
Property vacancies can have a negative impact on your return on investment. If you have to find a new tenant each year, you are going to spend time and money on marketing, tenant screening, and move-in and move-out inspections.
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When you own a single-family property, you are more likely to rent to tenants who are looking to stay in the property for a longer period of time.
When you have long-term tenants who resign their lease year after year, they are more likely to take good care of your property because it becomes their permanent home. In a multi-family property, tenants tend to come and go more often.
Vacancy is your biggest expense in rental property investment, so the longevity and the quality of the tenants is an important point to consider.
3. You Can Spend Less Time and Money on Maintenance
A single-family home will only have one water heater, one washer and dryer, one kitchen and only a few bathrooms. This is a lot easier to manage, repair, and pay for than the amenities at a multi-family complex.
With multi-family properties, it can be harder to isolate issues. When problems do arise, it is more likely that the issue will affect multiple tenants.
Bed bugs can cause problems for the whole building, there can be water leaks from an upstairs unit into a downstairs unit, more neighbors will be bothered by a noisy tenant, and if there is an emergency like a fire, it can take out multiple units, not just one.
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The one major advantage that multi-family properties have when it comes to maintenance is that you will have an on-site handyman, who can take care of things without you having to make a trip to the property. This is also convenient for your tenants who will always know who to call if something goes wrong.
4. You Can Offer Tenants a Yard Space
A single-family home will almost always feature a yard or a decent outdoor space for your tenants to enjoy. While multi-family properties can have great outdoor spaces, too, they tend to be smaller balconies or larger shared spaces.
Whether your tenant is looking for a yard for their kids and pets to play in, a place to plant a vegetable garden, or a cozy patio to enjoy with their loved ones, having a yard space will make your rental property a lot more of an attractive home to prospective tenants.
5. It Is Easier to Build a Diverse Portfolio of Properties
It is easier to have a diversified real estate investment portfolio with multiple single-family homes; you can purchase in different cities, demographics, job-driven locations. Whereas a multi-family property means you are putting “all your eggs in one basket” because that one location is all you have.
As we mentioned before, single-family homes are significantly more affordable to purchase than a multi-family rental property. The purchasing process is simpler than other property types, too.
The standard down payments tend to be lower, and it is usually easier to get a loan to purchase a single-family home than if you were to buy any other kind of property.
However, one advantage of financing one multi-family property is easier accounting because you will get one loan vs several loans spread between multiple single-family properties.
6. Your Property Will Be Easier to Sell
Single-family homes can be sold separately. This is especially helpful if one particular property is not performing optimally anymore and it is time to sell it and purchase a better investment property using a 1031 Exchange.
If you have a multi-family property, you would not be able to sell off individual units to better invest. Your only option would be to sell the entire property and you would be looking for another like-minded “big fish” investor.
Single-family homes appreciate along with the market; however, the sale can also be influenced by the buyer’s emotions who is purchasing it as a primary residence. So, it is possible you can sell it at a higher price because your property has a feature that the buyer is set on having in their home.
Multi-family resale value is based on rental rates and numbers, and other investor buyers tend to be looking strictly at the performance of the property.
Bottom Line
If you are looking to start your investment property journey, a single-family home is a great place to start. You can use the income you generate or pull-out equity once your property appreciated to purchase more single-family properties or even a multi-family property.
Both types of properties make sound investments, but starting with a single-family home will be a smoother process for first-time investors with fewer bumps in the road. When it comes to rental properties, there is a lot more to it than just purchasing a property.
Getting someone else to manage your property can help reduce the stress of day-to-day responsibilities so you can focus on building your portfolio. And that is where we come in!
At Service Star Realty, we can help you find the best tenants, charge the right prices, and keep your property (whether it is a single-family home or multi-family building) in great condition.
If you are looking to maximize your income without all the stress, contact our team today!
Service Star Realty
2929 East Camelback Road #119, Phoenix, AZ 85016
(480) 426-9696
