thoughts on single family rentals?

Question

hello everyone,

Have been looking more heavily into single family rentals because some can be picked up for relatively cheap around me. I was thinking of a SFR bring my next investment property for renting out. From your experiences, do you like them or do you tend to stay away from them? Why or why not? Pros vs cons? I'm interested in what you guys think! Thank you.

Mathew Owens · Answer

I am a CPA and full time real estate investor. I have purchased over 400 single family homes and I purchase a multifamily per quarter/6 months. I can tell you that for a beginning investor a single family home is the way to go to start off with. There is a TON of learning that goes on when you first start owning real estate. Property management is the #1 thing that will make or break you with either SFHs or multifamily properties and you really really do not want bad management in a multifamily, it compounds the problems. If you are going to manage them yourself its very time intensive and for your first few you may want to go that route just because its really hard to find a good property manager. The mistakes you make on multifamily properties as a beginner are by nature larger and cost more money. Its great to learn this business doing a few smaller deals, understand the ins and outs, the tenant landlord laws, how to rehab your units for preventative maintenance, tenant headaches, etc.

The maintenance aspect is the primary thing to look out for. You have to make sure your roof, HVAC, furnace, appliances, plumbing, electrical, foundation, clean out piping to the street, etc are all taken care of and get a full inspection report. Those are the items that will kill you in this business if not taken care of up front, especially on a single family.

Hope this helps.

Matt

The maintenance aspect is the primary thing to look out for.  You have to make sure your roof, HVAC, furnace, appliances, plumbing, electrical, foundation, clean out piping to the street, etc are all taken care of and get a full inspection report.  Those are the items that will kill you in this business if not taken care of up front, especially on a single family.

Hope this helps.

Matt

Jason Royer · Answer

I think that it is a long term strategy. If you buy in good areas, the homes will appreciate and you should be able to get good tenants. Around me, many people are getting into the low end stuff because it is easy to get into, but their appreciation isn't happening. My thought is that you have to pay a little more to get into nicer areas, but you will either pay for it now, or end up paying for it later, so you might as well get into a good area now.

Richard C. · Answer

I think the desirability of duplexes, either as investments or from a renter's perspective, is something that is pretty location-specific.  I would say in general they are seen as much less desirable than single families in this area, and really not much more desirable than 3-4 units.

The real concern with SFRs is not getting tenants.  It is on the expense side.  If you go with 2 SFRs rather than a duplex, you have two roofs, two furnaces, two hot water heaters, two driveways, etc, etc.

But you have advantages.  Ease of exit, possibility of appreciation, generally longer tenancies and superior tenants, etc.

Really, you should evaluate every prospective deal on its own merits, and not worry about whether it is "good enough" relative to other hypothetical deals that are not in front of you.  Does the deal work, or not?  If it works, go for it.

Richard C. · Answer

I have 3.  I have no multis.  One really significant advantage is exit strategy.  Any time I need to, I could sell a SFR to an owner occupant.

If I were trying to get rich in real estate, or even trying to make a living from real estate alone, I would probably buy multis.  As it is, one of my prime motivations is to be able to give each of my kids a house someday.  So SFRs work fine.

They do cash flow for me, and because I replace every major system, I have effectively zero maintenance calls, which is very important to me because I have a busy life with a job that requires frequent travel.

Jesse T. · Answer

The plus of single family homes is tenants may end up staying longer.  The trade-offs are it can be harder to find tenants.

Generally for a SFH rental you will want a property that is about average in size and lot size, if not slightly below.  I would look for a Real Estate agent who successfully rents out SFHs in your area.  They should be able to tell you what does well in the area and give you some examples of actual rented properties.

I am not sure about other markets, but around here in general a larger yard will increase value of a property, but not the rent.

Joseph Shevy · Answer

Great point. I know a lot of what I'm asking us area specific but I'm trying to learn how others see it.

You all make great points. I'm glad to see all the feedback from bp.

I guess a lot if my decision is based on cash flow and what tenants I can attract with certain sfr's in my area.

Account Closed · Answer

I think the majority of investors on this board are rental property folks. Some have done really well, better than I did in my first REI life 10 years ago. Its a tough business, but you will get the guidance you need here for sure.

Andreas W. · Answer

@Joseph Shevy

It also depends on the market you have.  In my area duplexes, triplexes, and quads are mostly in less desirable areas. Those areas are improving but the duplexes I have inspected were text book cases for decades of deferred maintenance. The achieved rents didn't warrant much investment. On the other hand, here is a large pool of cash flowing SFRs.

Bryan N. · Answer

@Joseph Shevy

There are pro's and con's to each type of (SFR/TH/Condo/Multi/etc) buy and hold investment.  Look at it a different way.  What type and quality of renters to you want to attract?  At the end of the day, all the hypothetical benefits or consequences of a property type doesn't mean a thing if you are getting involved with people you don't want to be involved with.  You have to live with them each day... Your returns are someday.

Joseph Shevy · Answer

thanks for all the feedback guys. Feels great getting some different perspectives, especially from seasoned investors.

Mathew: I am actually starting my real estate investing in a duplex im in the process of closing on. Im getting it through an FHA loan, which means it must be owner occupied, as you know. The property seems like a great buy and has great cash flow potential. So, in a way, I feel like this is the best way for me to start out because, even though its a duplex, im still only managing one tenant-occupied unit. And another great point you made was the maintenance aspect. That is definitely something I really check out in properties. I have a few great connections for inspecting and fixing the "big" maintenance issues.

I guess I'm entertaining the idea of investing in a SFR next because I can put 20-25% down on one before the year is out, for the prices in my area. A nicer duplex, that will cashflow, probably not until next year. So, im just trying to gauge whether I should continue saving and be on the look out for a multifamily or SFR, assuming I can handle half a duplex first.

Joe

thoughts on single family rentals?

Most Popular Reply