Are single family homes good for long term rentals?

Question

Hi all! Learning and setting out to make my first deal and I’d like to focus on buy/hold long term rental for a rehab. I’d love any advice on if freestanding single family homes rent out or if I’m better off with a condo to rent out as an apartment. I’d like to avoid HOAs and/or bylaws so I’m attracted to the idea of a house, but do houses tend to go to buyers vs renters? Looking in suburbs (Ideally DuPage but open) or city areas of Rodgers, Logan, Jeff Park, but I’m leery of city Cook County. (I live in Chicago myself.) I tried googling but this isn’t an easily found topic. Any thoughts on if it’s tough to rent out houses?

Bill Ward · Answer

I rent out my previous single family home. It's nicer inside that others comparable in rent here, nicer carpet/windows/paint vs. the standard plain white walled rentals and cheap carpet. I always have a surplus of interest to rent it. Tenants also love the privacy fence and that I allow pets. Anybody with a dog knows it's hard to find a place that will accept them. I usually get my pick of tenant applicants which allows me to get the highest qualified.

Marissa Liesenfelt · Answer

Thanks for the replies. I’m ok giving up cashflow for long-term appreciation in this instance so long as I’m at least breaking even. Maybe with a few under my belt and getting used to managing renters I’ll have the confidence to go south side, but right now I feel too intimidated by the areas that would make me the most profit and would rather try to find gems in neighborhoods or suburbs I understand better.

Marissa Liesenfelt · Answer

Thank you to all for your great help and advice! Such a great community on BP.

John Warren · Answer

@Marissa Liesenfelt what I like about single family homes and condos is that they appeal to the end buyer who will always pay a premium and buy on emotion. This means that your exit is always pretty simple. What I don't like about single family homes is that they typically won't cash flow nearly as well as a multi unit will. In a perfect world, you would use single family homes as a stepping stone if you are in the Chicago area because there are just so many wonderful multi unit properties out there. This isn't true in every market though.

John Pezzullo · Answer

@Marissa Liesenfelt I have been using single family homes in cook county and the suburbs.  Cash flow is good on all of them.  Yes it is harder to find properties in the suburbs but they are there, especially if you buy distressed properties and fix them up. Don’t just rely on appreciation.  Southern cook county has a few good pockets. I do not have any in Chicago itself. Join a local reia group - I like www.chicagoreinvest.com

Kevin Sobilo · Answer

@Marissa Liesenfelt, every market will be a little different. In general for all types of rentals the lower end the unit the better they will cash-flow on paper. I say "on paper" because different categories of rentals require different management styles to maximize them.

Yes, single family homes can make good long term rentals, but the nicer the unit the less likely you will find an on market deal that is attractive.

I would look at SOLD properties and use those to analyze how that property would cash flow if you bought it at that same sale price. Do this for a bunch of properties and see what you find.

I own single family homes in C class neighborhoods where almost the entire town is C class (R-2 Residential zoned). However, most of my rentals are B class after I rehabbed them. So, I can attract better than average tenants. In my area that seems to be the best balance between ROI and having stable rentals with less dramas and management headaches.

Dan Nelson · Answer

I love to buy houses in Chicago and rent them out.  It is true the short term cashflow is not great.  But if you know how to pick the right property that is undervalued in an area that is going up in value, you will spend every week wondering how much you are going to net when you eventually sell it in 10 years, 20 years, 30 years.  I have a client that thinks of one house I sold them as their retirement fund.

Jonathan Klemm · Answer

@Marissa Liesenfelt - I definitely think single-family homes are good for long-term rentals.  I always think if you provide a good product, like any business, you'll find good clients.

Additionally, I also think starting with single-family homes has the least amount of barriers when trying to get into real estate investing.  I am not personally a huge fan of condos unless you are flipping them, only because that HOA fee always seems to lower the cash flow lower than I'd like.

Regarding Chicago vs suburbs - You'll typically see high cash flow in the suburbs unless you are in C/D areas of the city.  For me personally, I've always bet on the long-term appreciation of Chicago and bought properties close the "L" which always seem to continue

Henry Lazerow · Answer

If not looking for cashflow yes you can create some awesome equity doing single family rehabs. Avondale and the western sides of Logan Squares are still cheap enough for as-is properties and the ARV (after repair value) can get very high once the rehab is done. I also like west lakeview/roscoe village area for a nice difference in as-is prices vs after rehabbed. You can do the same thing with 2 units.

Crystal Smith · Answer

Are single-family homes good for long-term rentals?- Short answer YES.  Currently, there's a shortage of single-family homes for rent in the Chicagoland area.  So having a strategy to build a portfolio of single-family homes isn't a bad one.

Regarding your question about whether homes going to buyers versus renters- I assume you meant homes going to owner-occupants versus investors. In this market, if the home is move-in ready then you'll be competing against owner-occupants. If you're a cash buyer that can close quickly you'll have an advantage. If not then you'll be competing like anyone else. The strategies you may want to consider are to go after homes that are not move-in ready or purchase from an investor or company that sells turnkey homes with tenants already in place.

So I answered yes they are good for long-term rentals because we know lots of people who have been very successful with this approach. We however aren't big fans of single-family homes for rentals only because it drives us nuts when an asset isn't producing cash. So we stopped buying single-family rentals and stick with multi's or commercial rentals. It's a psychological thing.

Are single family homes good for long term rentals?

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