A single-family home is the most popular type of property in the United States. Currently over 44 million Americans live in a rented single-family home. Characteristics of a single-family home include:
- No shared property on land
- One set of utilities
- Private entrance and exit
- Single kitchen
- One owner
- No common walls
- 1-3 stories tall
Although single-family homes are very popular, is it worth investing if you are seeking to generate rental income? Let’s discuss the benefits and drawbacks of single-family homes.
Pros of Investing in a Single-Family Home as a Rental Property
Opportunity for hands-on property management
For investors looking to try hands-on property management, a townhouse might be a suitable investment. With a townhome, investors can learn tenant management, property management, handling repairs, and more. Over the course of time, an investor can learn all aspects of managing a property. This can help them hire and onboard a property manager because they can teach the manager exactly what to do and what the day to day operations look like.
Potential Store of Wealth¹
Townhomes have the potential to store value and wealth for investors. In addition to being an investment opportunity that seeks to provide monthly income, they have the ability to appreciate over time and can be sold or passed down to an heir.
Diversification²
Townhomes are also a way to diversify portfolios for investors. Investors who own townhomes may also have assets like other properties, stocks, and ownership in businesses. Townhomes offer a way for investors to diversify their portfolios and potentially bring in additional revenue each month.
Cons of Investing in a Townhome as a Rental Property
Tenant Management³
The benefits of owning a rental property can be overshadowed if there’s too much tenant management needed for a townhouse. If you don’t screen the tenant for your townhouse carefully, they can be very difficult to deal with and they can slow down your financial goals. A bad tenant can be very costly and that directly eats into the profits of the rental income. Some routine tenant management activities you will have to do are collecting rent, resolving minor property issues, complying with local regulations, and more.
Property Management
Property management is another cost in owning a townhouse as a rental property. These are costs that are needed to keep the upkeep of the property. This includes plumbing, fencing, roofing, painting, and more. These are mainly occasional costs, but they can add up to thousands of dollars over time.
Repairs
Townhomes also require repairs occasionally. Depending on the type of repairs needed, the cost can vary dramatically. General repairs are often one-time costs that are less than $500. Major repairs that cost more than that may be tax-deductible. Repairs are just a nuisance when it comes to managing your property and they don’t add significant value to the value of the property.
These are just some of the main benefits and drawbacks of investing in a townhouse. It’s important to consider each point and make a calculated decision before selecting a townhouse as an investment property.
1.Past performance is no guarantee of future results. All real estate investments have the potential to lose value during the life of the investment.
2. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
3. One may suffer adverse consequences as a result of any financial difficulties, bankruptcy or insolvency of their tenants.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. One may suffer adverse consequences as a result of any financial difficulties, bankruptcy or insolvency of their tenants. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status.
