Investing in residential real estate can set a person up for life with consistent and stable returns. This assumes that an investor rents properties rather than flips them. In terms of the types of properties investors should look at, single-family homes have a lot to offer.
Investors looking for something else can invest in duplexes and large homes that have been divided into several apartments. Then there are commercial apartment buildings of all sizes. The smallest start at four units while the largest can have literally hundreds.
Anyone thinking about getting into real estate investment has to consider residential rentals. More specifically, single-family rentals. Below are five solid reasons for choosing them over the other options.
1. Longer Tenant Stays
One of the keys to successful long-term returns is stability. The longer a tenant remains in a property, the more profitable that property becomes. On the other hand, constant turnover equates to less profit. The good news about single-family homes is that the average tenant stay is 2.5 to 3 years. The average stay in a duplex or commercial apartment building is 1.5 years.
2. More Cooperative Tenants
Hand-in-hand with longer tenant stays are more cooperative tenants. Because single-family homes attract tenants who tend to stay longer, those same tenants are more likely to take care of the homes they live in. They are more likely to contribute some sweat equity in exchange for a little more freedom to make changes.
Note that the street runs both ways here. A tenant will be more cooperative if the landlord is equally cooperative. Conversely, a combative landlord generally instigates tenants to be equally combative.
3. It’s Easier to Find a Bargain
Real estate investors have to be careful to not spend too much money on acquisitions. Therefore, it is in their best interests to shop around for bargains. They are more likely to find said bargains in residential neighborhoods populated mainly by single-family homes.
On the other hand, duplexes and commercial apartment buildings are typically sold by other investors or management companies. Both types of owners are more savvy. They understand how valuable rental property is. They are not about to let a good property go at a bargain basement price.
4. Traditional Financing Is Easier
Salt Lake City’s Actium Partners says that hard money is more difficult to come by when investors are buying single-family homes. That is something to consider, given the fact that hard money fuels real estate investment. But the other side of the coin is that traditional financing is easier to obtain on a single-family home.
Where banks and credit unions tend to shy away from duplexes and commercial apartment buildings, they are much more willing to look at single-family homes. Hard money lenders are just the opposite. The new investor is safer going with single-family homes and traditional financing.
5. Asset Liquidity Is Greater
Real estate investors always have to be cognizant of the fact that they may need to liquidate. It only takes one bad deal to cause problems. Once again, single-family homes win the category. They are a lot easier to sell, making their liquidity greater. If an investor runs into financial troubles, selling one or two houses to make ends meet is a lot easier than selling a duplex or commercial apartment building.
Note that single-family homes can be tougher to manage. They have their scalability and cash flow issues as well. But overall, they are good vehicles to invest in. Anyone looking to get into real estate investing for the first time would do well to look at single-family rentals.