Rental rates on the two types of properties are a key issue. Investors generally assume it will take four or five years of rent increases for income to cover maintenance costs, taxes and other expenses. If there's a glut of condos or single-family homes, you may not be able to raise rents very fast, prolonging your time in the red. Of course, a glut also means home prices will not rise very fast. The ideal rental property is in high demand, allowing the owner to raise rents every year and assume that property values will rise at a good clip.
Generally, operating costs are easier to estimate on condos, because the exterior work is covered by your association fees. With a single-family home, costs for a new roof, landscaping and exterior painting could hit you out of the blue.
Another factor to consider: the type of renter likely to be drawn to your property. A recent survey by Premier Property Management Group, which manages 1,700 properties in 20 U.S. cities, found that renters of single-family homes are 18% more likely to stay in the home for five years or longer. Generally, that's good for the property owner, because each change in tenants can mean going a month or two without rent.
The survey noted an increase in recent years of the number of single-family homes for rent. That's due, in part, to the large numbers of foreclosed properties that have been turned into rentals and the difficulty many renters have had in getting mortgages.
"Single-family renters make more money and are nearly twice as likely to have children as apartment dwellers," the survey found. Around the country, the median income for single-family renters ranges from $75,000 to $100,000, compared with $50,000 to $75,000 for renters in multi-family housing. About 63% of single-family renters have children, compared with 34% of multi-family renters. Single-family renters also tend to be older.
No doubt, there are lots of terrific tenants among the childless 20- and 30-somethings who prefer multi-family housing and are likely to move fairly often.
But tenants who are older, more prosperous, used to dealing with responsibilities such as children and likely to stay in the home for a number of years can be especially appealing for the property owner. With an unusually large number of renters of this type looking for homes, the single-family investment property is worth considering.