Many investors purchase single family homes as their first rental property because it is seen as lower risk and much easier to manage than a multi-family property.
When deciding what type of property to purchase, it's important to understand the differences between rental property types. Here is what you can expect when buying a single family rental property.
Lower Purchase Price and Lower Risk
One of the most important parts of the rental market is the entry barrier. You need to be able to afford the downpayment on a rental property before you can even consider purchasing it. With single family homes, the overall cost is going to be significantly cheaper than multi-family. This is due to the size difference between the two types of properties. With a cheaper purchasing price comes lower risk, as the sale of a single family home is much easier to facilitate than the sale of an apartment building or a large multi-family home.
Higher Rent and Better Quality Tenants
A large benefit of renting out a house is getting to set the rental rate at what you want it to be. With single family homes the average rental rate is about 20% higher in a 3 bedroom home vs a 3 bedroom apartment. Furthermore, with only one vacancy to fill, you can be picky about the tenants you choose to rent to. You can have a much more extensive screening process ensuring you're renting to people with a good credit score and a history of being a good tenant. Lastly, the average annual turnover rate in a single family home is 30% compared to 50% for multi-family apartments, resulting in far fewer vacancies to fill.
Another benefit of a single family property is that you only need to worry about maintenance for one unit. This can easily be managed on a situational basis as opposed to an apartment where you need a maintenance worker on staff, saving you more money. This, coupled with a better quality tenant can result in less damage throughout the house, as you have a far better idea of what type of tenant you'll have. Despite needing less maintenance, you still need to have a budget for maintenance which should typically be between 1-4% of your home's value. However, that 1-4% is going to cost significantly less than it would at a large apartment building or large multi-family home.