Are you thinking of buying a few properties as rentals? Your first thought may be to purchase duplexes or even a few walk-up buildings. However, more and more landlords are beginning to buy single-family homes to rent out. Is this a good approach for your real estate investment? That depends. Take a look at these pros and cons of buying single-family homes as rentals.
Pro: Your property taxes will probably be lower.
Property taxes are usually higher on multi-family homes than on single-family homes because municipalities know that multi-family homes tend to be income properties. By buying single-family homes and using them as rentals, you can save on your property tax bill, which will help you make more of a profit.
Con: If a home is vacant, you lose out on income completely.
If you have a multi-family home and one of the units is vacant for a few months, then you still tend to have enough income coming in from the other units to cover the mortgage. If you have single-family homes for rent, on the other hand, a vacancy means no income from that property — which means you'll have to pay for the mortgage out of your own pocket until the space is filled.
Pro: Renters tend to stay longer.
Think about the type of renter who would want to live in a single-family home. Usually, it is someone with kids and a more stable job. Renters of this type tend to stay in the same place for a few years at a time, which means you will have less renter turnover, on average. You won't have to spend as much time or money searching for new renters when your renters stay for longer.
Con: You may have to pay HOA fees,
Some single-family homes are located in areas that are governed by homeowners associations. You could look to buy specifically in neighborhoods that don't have an HOA, but these only exist in some areas. If you do end up buying in a neighborhood with an HOA, either you or the renter will have to pay the associated fees. You will also have to make sure your renters adhere to the HOA guidelines, which may be challenging in some cases.
If you can find homes in a neighborhood without an HOA and manage to minimize vacancies, buying single-family homes as rentals is a great choice. Talk to your real estate agent to learn more.