Single Family or Multiple Tenants?

Question

In my area there are multiple single family houses that have 3+ bedrooms and living area enough for a multiple individuals but would be a smaller market for a single family (I.e. the family would either need to be fairly large or convert the extra bedrooms into a different type of space). When renting out a large (1500+ square feet, 2+ bed/bath) single family home what is the better strategy to take: rent to a single family or rent to two or more individuals?

Are there legal or ethical questions that should come to mind or is this purely financial?

Should I focus only on smaller single family houses? What are some strategies to fill a bigger single family house?

Are there legal or ethical questions that should come to mind or is this purely financial?

Should I focus only on smaller single family houses?  What are some strategies to fill a bigger single family house?

Chris Buesing · Answer

@Stacie Johnsongreat insights.  To recapture appreciation you could have several three or more smaller properties to get to the same 200 K in equity as one larger property, of course you might not achieve the same appreciation if your homes are in a less desirable area.  However, the cash flow on 3 smaller homes bought right, say each cash flows 150 per month,  that would be a cash flow of 450 on the three, which might exceed the cash flow on one single family 200 K property.

The other side of that coin, sort of to @David Krulac's point, is that your 200 K is divided into three units which is three times the hustle work for your money.  If you want less hassle the larger bedrooms and square footage, and less units is the way to go.

Stacie Johnson · Answer

@Dan Jones I completely second what @Andrew Dunham shared.  I would add another angle for you to consider from an investment/appreciation angle but first - when it comes to finding people to fill a particular size property my philosophy is there's a lid for every pot.  You can do yourself some favors like having a garage on a smaller rental helps keep a tenant longer much the way having a larger home with i.e. 4 bedrooms will keep a family longer.

A couple investment/market value items to consider include sale-ability and appreciation if you're looking long term.  Lower priced properties are affordable to a larger portion of the population but may not be as desirable if they're "deficient" in some way like lacking bedroom count or garage.

Second when it comes to market appreciation, if the market in general appreciates at say 2-3% per year obviously you'd rather have 3% of 200k than 75k.

School Districts and proximity to major employers or easy commutes also help.

I've spent a decade working with home buyers which is basically what a renter is so if you're interested in the thought process they go through i've got more!

best wishes! and have fun!

David Krulac · Answer

@Dan Jones

Renting essentially rooms to strangers is a different business.  Just like air BnB is a different business.  Renting to temporary corporate clients, or transient tenants imho requires more work.  In my business model I'm looking for tenants to stay a long time, have two tenants been there for 30 years each.  And I have other long term tenants.  Some of the properties I have not been inside for more than a year, sometimes multiple years without me seeing the inside of the property.  It also means that there is less vacancy.  Less vacancy means healthier bottom line, and less maintenance.  The one 30 year tenant I painted twice.

David Krulac · Answer

My preference is 3-4 bedroom houses, but we do have 2 and 5 bedroom houses, rented to families. At one 4 br house we rent to a family of 3, mother, father and child.  Each parent has their own office in the 3rd and 4th bedrooms.

Andrew D. · Answer

@Dan Jones I have houses in the Cedar Rapids area ranging from 700 sq ft 2 bedrooms to 2000+ sq ft 4 bed 2 baths. My 4 bedrooms stay rented and I get referrals all the time looking for them so I guess you could say I have a wait list. I have had roommate situations before but most of my long term tenants are familes. They've decided to move for whatever reason usuall it's for more space and they don't like moving so they tend to stay put

Account Closed · Answer

@Stacie JohnsonPlease share more about the what the thought process is....?!

P.S. I love the perspective of the appreciation differences.

Dan Jones · Answer

Thanks for all the great thoughts!  My concern had been the lack of market for larger single family homes but it sounds like its there and quite stable.  Also minimizing the amount of hands on time is big for me as I'm already working a full time job so the point that a single family will be much less hassal than multiple individuals is well taken.

Dan Jones · Answer

Thanks for the insight guys!  @Andrew Dunham - really appreciate the local tip.  Seems like its just not a smart move to try to split up a single family unit into a multi tenant rental.

Single Family or Multiple Tenants?

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