In the real estate world, there are dozens of different kinds of properties that can become investments.
One of the most common investment properties is a single family home.
Now, although the definition of a single family home sounds self-explanatory, they may have some characteristics that you didn't know about.
So, in this guide, we will be diving into what exactly are single family homes as well as their usefulness as an investment.
To begin, let's go over the general definition of a single family home.
What Is A Single Family Home
A single family home can have a few specific definitions, but they all consist of one, overarching definition:
A home that is meant for one family to live at a time.
In most cases, however, a single family home is meant more like a single family detached home. This means that the home does not share walls with another home.
Now, although this sounds simple, it is extremely important to be knowledgeable of the actual, legal definition of a single family home.
Why, you may ask?
Below, we will cover exactly why it is so important to know what constitutes a single-family home.
Legal Definition Of A Single Family Home
Knowing the legal definition of a single family home is extremely important for some specific circumstances.
One situation where it is important to know the exact definition of a single family home is because of how they're financed. Depending on how the property is classified, like if it is a single family home or a multi family home, the mortgage rates can change.
Apart from the mortgage rates, the loans on single family homes tend to be lower as well. This is due to some limitations imposed by the Federal Housing Administration (FHA).
So, since obtaining a single family house is obviously more difficult, why do investors choose them?
To answer this question, we will provide a list of pros and cons of investing in single family homes.
Pros & Cons Of Single Family Homes
Although it may seem like single family homes are difficult to obtain and are therefore not the preferred investment, that is not completely true.
Below, we will explain the pros and cons of investing in a single family home.
Pro: Longer Lease Periods
Typically, single family homes are rented to give the family a chance to save for buy a house. This means that they are rented for multiple years at a time.
So, since the property will be occupied by the same family for many years, the ROI increases. This is because landlords will not have the need to find new tenants every year and go through the entire tenant screening process.
Pro: Lower Property Taxes
If there's one thing that investors are always trying to avoid - it's taxes.
Thus, single family homes are perfect. This is because, compared to a multi family home or an apartment complex, single family detached homes can have lower property taxes every year.
Pro: Lower Cost To Manage
Another benefit of investing in single family homes is that they are cheaper to manage. This is because, since it is a single dwelling unit, the landlord only has to worry about managing a single family.
This could mean a lower annual cost of upkeep for the landlord and thus, a higher ROI.
Con: Chance Of Vacancies
Since single family homes only have a single tenant, they are considered vacant if that tenant leaves.
On the other hand, multi-family properties can stay occupied even after one tenant leaves. So, it is important to factor in the time that the property will be unoccupied when searching for investments.
Con: HOA Fees
Many times, detached single family homes form part of a homeowner's association (HOA).
The HOA can have pretty hefty fees that can significantly alter the way that the property is managed. It is also important to remember that HOAs typically have strict rules pertaining to their properties, so those should also be considered as part of the property management efforts.
Con: Smaller Land Sizes
Families looking for a property with more space or a large amount of their own land may shy away from purchasing a single family home. This is because these homes typically feature a lot that is less than 1/4 of an acre.
So, as you can see, there are many reasons why you should, or shouldn't, invest in a single family home.
If you're not sure, however, then maybe you should look at some alternatives before making a decision. Below, we will be explaining some of the best alternatives for a single family home.
Single Family Home Alternatives
If you want to invest in real estate but are not sure if a single family home is the best choice, continue reading.
Below, we have outlined some of the best alternatives to single family homes in terms of real estate investments.
A multifamily home is a residential structure that is made up of multiple housing units.
The purpose of this kind of property is to - you guessed it - house multiple families. Usually, the units of a multifamily property are built on top of each other, similar to a condo building.
Investors like multifamily homes because of the solid opportunity for ROI. Many of them rent out the multiple units or they live in one of them rent out the others.
A condo is a property that looks very similar to a multifamily home. The only difference is that each condo unit is owned by a different person and each one has direct access to the condo's common areas.
Condo's are usually a great place for homeowners to start their home-owning journey as they require little maintenance and can be very cost-effective.
A townhouse can be considered a hybrid between condos and single family homes.
Townhouse owners own both the building and the land that it sits on, but the property typically forms part of some sort of association, like an HOA. This means that, although the owner owns the land and the property, they have to follow strict HOA rules and pay steep fees.