6 Strategies For Investing In Single-family Properties

Investing in a single-family property can be a safe bet for real estate investors who would like to learn the ropes since they are a stable investment, allowing for investors to start collecting rental income immediately while also having strong potential to appreciate over time. The many benefits of this type of property makes it attractive to both novice and experienced investors, and this is one of the most popular strategies in the real estate market. While the tried-and-true way of generating income from a single-family home is simply leasing out the property and collecting the rental income, there are multiple different strategies you can use to get the most out of your single-family property investors.

1. Rental income

As mentioned above, this is usually the most popular strategy for generating income from a property. The property is bought and held to lease out to tenants for rental. There’s a reason this is so popular with investors. Renting out the property is the easiest way to generate passive income with minimal effort. Finding the right tenant is often the biggest challenge, although any maintenance work would require some effort and cost to correct.

2. Fix and flip

Fix and flip properties are buildings that need repair and renovation, but because of this can be found at below-market prices. Investors purchase the property, fund the repairs and refurbishment and then resell the property for a profit. This strategy allows savvy investors to make quick profits should all go to plan. However, if there is any significant repair work to be done, the potential for mishaps and cost overruns is high; this investment strategy also comes with a lot of risk. If the investor underestimates the demand for the refurbished property, they may get saddled with an expensive repair bill and no buyers. However, as the property owner, settling for collecting rental income until a sale comes along.

3. Convert the unit into a multi-family property

Just because you purchased a single-family property doesn’t mean it has to remain that way. With the necessary approvals, converting your property into a multi-family is possible, and investors can increase rental income drastically by opening the property up to multiple tenants. One way of doing this is to expand the property by adding on new structures and converting it into a duplex or triplex. The other way to achieve this is to subdivide the property into smaller units if the layout and building allow it, making more with the same space.  

4. AirBnB rental

Listing your property on a platform like AirBnB allows you to make more money than a single long term lease as the daily rate can work out to significantly more if you maintain a high occupancy rate. The high turnover of short-term renters does make maintaining the property more complex, and costs for repairs and cleaning does add up. However, these costs are easily covered through the rental price if your property is in demand.

5. Rent to own

This is another way to profit of the property in a relatively shorter period where a tenant has an agreement to purchase the property of the real estate investor after a short period, maybe in 3 to 5 years. This generates an immediate cash flow while having a committed buyer after the rental period.

This strategy is attractive for investors not looking to hold onto real estate long-term.

6. BRRRR strategy

The Build, Rehab, Rent, Refinance, Repeat (BRRRR) strategy is similar to the fix and flip model in its opening stages. Still, this model allows investors to invest continuously in new properties without waiting for the property to return on the investment through a sale which means they still own the property. The strategy works as follows: the investor buys a property that requires repairs using hard money, usually for higher interest rates (maybe 10% – 11%). They then rehab the property with the same loan to increase its value to attract higher-paying renters.

The real estate investor then collects rent for maybe the first six months or one year, paying down the initial loan a little. The property is now more valuable than it was when first purchased, so the investor takes it to the bank for refinancing, where they should be able to get perhaps 70% to 80% of the increased property value at a lower interest rate. Using this refinancing, the investor pays off the original loan completely and then uses this new opportunity to take on another hard loan to repeat this strategy on a new property.

They can hold onto the original property while still collecting rent to help pay down the 2nd mortgage, yet they still have access to funds to invest in a new property to repeat the BRRR strategy. This is usually a strategy best left to more experienced investors as the complexities of rehab and financing can lead to missteps that may cost the investor significantly more than they planned, making them unable to repeat the model.

Conclusion

As can be seen, there are multiple ways for real estate investors to get started and generate a healthy income from single-family properties. When planning your next investment, consider the pros and cons of each strategy and the potential returns versus your risk tolerance to discover the best approach to use when investing your funds.

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