By far, the best type of real estate to own is the single family home rental property. In today’s show, we are going to be talking about single family home rental properties, why I love them, and why you should too.
I personally own over 30 single family home rental properties and am fully blessed to have quit my job at 37 years old. Now I will never work a job again and am successfully unemployed.
Even though there are many types of properties to invest in, I have found that single family home rental properties have been the most lucrative for my business.
Simple Process to Invest in Single Family Home Rental Properties
When you start investing in real estate, the easiest way to purchase a property is with a single family home. It costs a lot more money to buy an apartment complex and there is a lot more involved in just getting the loan.
The best place for you to start investing is in a single family home. This can actually be up to four units, when it comes to a conventional loan. If you were to buy a single family home to live in yourself, you can call up a realtor and mortgage broker.
It is easy!
If you bought a home and then rented it out, it is a little different, because you might have a different mortgage, but it is basically the same thing.
Once you get to the fifth property, that turns into a multi-family property and you need a commercial loan. Instead of it being in your name, the bank requires it to be in your company’s name. This is good, because it takes the liability away from us and puts it on the company.
It is so much easier to get a conventional loan than it is to get a commercial loan. If you have a regular, W-2 job, banks are going to lend to you. If you go back to the podcast episode about house hacking, I show you how you can use an FHA loan with 3.5 percent down to buy a duplex, triplex, or fourplex, live in one of the units and rent out the rest. You get paid to live in your own place!
If you are getting a conventional loan, you can still get an FHA loan, which allows you to only put 3.5 percent down. Let’s say you found a duplex and you bought it for $200,000. With an FHA loan, 3.5 percent down is $7,000.
That will buy you a property you can live in and, by renting out the other unit, they are paying you to live there.
Benefits of Buying a Single Family Home Rental Properties
1. Conventional Loan
You can still get a conventional loan, including an FHA loan, when you buy a single family home rental. This includes duplexes, triplexes, and fourplexes.
Much different than commercial loans.
Conventional loans have:
- Better interest rates
- Better terms
- Better time frame
- Faster and less paperwork
- You can get 4 properties in your name
2. Higher Cash Flow
When you have multi units, like 50 or 60 apartments, you have economies of scale, which is great, but your profit per door goes down. You can demand a higher premium with a single family home rental.
In some areas, you can rent a single family home rental with three bedrooms and two baths for $1,500.
For an apartment with a similar space, you may only get $1,100, because your tenants are going to be living next to each other. There is less demand for apartments, so you make less money on them.
3. Lower Barrier to Entry
If you buy a 50-unit apartment complex, you will probably need $2 million to put down on the property, which means you would need other investors.
If you wanted to buy a $200,000 property, and you took out a conventional, FHA loan, you only need to put down 3.5 percent, which is only $7,000. You don’t have a huge dollar amount to start your business.
4. Supply and Demand
The supply of tenants is greater, the supply for buying your rental is greater, and there are so many more single family homes than there are multi-family homes. It makes it so much easier, because the price point comes down.
I’ve bought properties from wholesalers, realtors, investors, and Craigslist, because there are so many available. When you buy them a little distressed you can put some paint on the walls and add new flooring and they look great!
When you sell an apartment complex, you are going to be selling to investors, but when you sell a single family home rental, you will sell to investors as well as homeowners.
PRO TIP: Make money when you buy.
You make your money when you buy the property. Since there are so many properties out there, buy a property for less than it is worth.
6. Make Money in Every Market
In every single market — up, down, or sideways — you are still making money. If the economy is going up, I am making money. If the economy is going down, I am making even more money. I invest for passive income, which is monthly cash flow that goes into my pocket. If the property value goes up, I make money too.
If the market goes down, that is when I start buying properties. As prices go up, eventually there will be a correction and the prices will come back down. You need to be ready for when something happens, not just monetarily, but you need to start learning about running your business now.
In a down market like in 2009, people foreclosed on their homes left and right. They couldn’t afford their homes, because they couldn’t afford their mortgages.
The supply is still there, but the amount of renters in the area skyrockets. Everybody needs a place to live. If they can’t afford their home, they will need to start renting, and rent prices do not necessarily go down.
7. They are Always Available on the Market
Single family home rentals are always available to buy, but apartment complexes don’t always come on the market. Even duplexes, triplexes, and four-plexes can be difficult to come by, because there are fewer of them.
The supply of single family home rental properties is so great, because there are so many people who live in these properties and you can wait for a good deal.
Each property in my business is a piece of inventory. I am concerned mostly about the business as a whole. If something happens to a property, I have insurance to cover it.
8. Longer-Term Tenants
Your tenants may stay in your property for many, many years, as opposed to apartment complexes. An apartment or other multi family home is usually a stepping stone for tenants until they can buy their own home.
Once someone is in a single family home, they may stay there. They may hate owning a home but like living in a house.
9. You Have So Many Buyers
If you want to sell the property, you have so many buyers, not just investors. If you buy duplexes, you will only sell to investors who want to house hack. If you are doing this business right, you are moving from one single family home to the next single family home.
Then you are moving up to the next single family home. You want to keep recycling that over and over, where you get into bigger single family properties, and then eventually multi family homes.
I am personally going to continue buying single family homes, if they are a good deal. On top of that, now I am looking at apartment complexes.
Syndication is my next business I will start investing in. I am looking at syndication, which means I am the primary investor and I have other people who are passive investors that give the company money. Payments go to the investors every quarter and I do all of the work with apartment complex.
10. The Price is Cheaper than an Apartment Complex
A single family home is so much cheaper than the price of an apartment complex, even if you had to put 20 percent down to get a property.
Paying $20,000 on a $100,000 property is so much less than $200,000 on a one million dollar property. You need a lot more money to buy an apartment complex.
When you buy a multi family property, you are buying a business. The value of a single family home is gauged on properties in the area and what they sold for in the past.
A multi family property doesn’t work like that, because there are not comparable properties, so they base it on how much money the property makes.
If it is 70 percent occupied, it is not worth as much as it would be at 95 or 100 percent occupied. It is a different type of property and it gauged differently to determine the selling price.
11. Tenants Value Single Family Home Rental
Tenants seem to value, respect, and take care of single family homes more than if they were in an apartment complex. When I was younger and lived in an apartment complex, nobody who lived in the apartment complex really cared about it.
They could care less if they damaged something. If they broke the oven, or even if they clogged the drains.
Since it wasn’t their place, they would just call the maintenance person to fix it. They didn’t care that it was their fault.
PRO TIP: Run a Background Check
Run a background check on anyone you are considering as a tenant. For the properties I manage myself, I use Cozy. Check it out at www.masterpassiveincome.com/cozy.
This is a free service that lists your property and they make money when you run background checks through them. It costs you nothing and it has everything you need in order to manage your property.
12. Simple Management Over One Property
It is easier to manage a single family home than it is to manage fifty units. Not only do you have to worry that the facility is in good shape, you have more furnaces that could go out.
There is a lot more you need to take care of when you have more units. When you get above 30 or 40 units in an apartment complex, there is more you need to account for and you may need to hire an on-site manager.
13. Better Quality Tenants
People that go into single family homes don’t have the same mentality as those that go into apartments. If someone is renting a single family home it costs more, which means they may have a better paying job and a higher credit score.
Not saying that there is anything wrong with tenants with bad credit scores. We just want to have good tenants in our properties. The better the tenant, the more money we make.
I have personally found that the people who take care of their credit and background history tend to take care of the places where they live.
When you have a single family home, your tenants won’t share walls. This means you won’t get bugs that go from one side to the other. I had a duplex that brought in bed bugs, and not only did they infect the one side, they went to the other side too.
Not only that, your tenants won’t complain about the other tenant being too loud.
Plus, tenants are willing to pay more for a single family home rental than for a duplex or more units attached. Think about it. If you were living, literally next to another tenant, you probably would rather be on your own. You don’t want to smell their cooking, hear the noises, or have any issues with a person right next to you.
That is why tenants prefer to live in and stay longer in single family home rentals.
15. Lower Maintenance Costs
With a single family home rental, there is less maintenance due to less square footage and fewer things to take care of. Maintenance costs tend to be lower. If you buy a newer home, there will be even fewer expenses.
With commerical properties, they tend to have more complex systems in place than a single family home rental. Now, you will have in the lease that the tenant will pay for the air conditioning but outside of that, everything will be more expensive.
Most times, you will need to hire a company that is certified and bonded. No more handymen to fix your issues.
Same with multi-family homes. There is more wear and tear on your property because of the turnover of the tenants in the property. It seems that most tenants will stay in an apartment for 1 year or less which dramatically increases your expenses.
16. You Don’t Need a Property Manager for Single Family Home Rental
When you buy a single family home rental, you don’t need a property manager, even if that property is thousands of miles away. The Cozy software handles everything for free.
Build the business first and have contractors ready. If something needs to be fixed, I get someone out there right away to fix the problem. I love property managers and think everyone should get one, until you have more experience and own more properties.
Get out there, start investing, and change your lives for the better!