Single Family Homes Good Investments?
Hello...
Is investing in single family homes for rental a good plan? I would like to get a few single families under my belt then shoot for a duplex or triplex .
Any suggestions or critique on my plan?
Let me know...
Chris
Single Family homes can be a good investment... Many investors focus on this market... Just remember if you have a vacancy, you have ZERO income... If you have a duplex or a triplex, and a vacancy you have only Half or Two-Thirds income... But at least you have something coming in...
My opinion is that if you find good deals in the single family market - lease optioning them would be a good option... You get above market rent and you make money (PROFIT) in the beginning (Non-refundable purchase money), monthly (rent +), and on the back end (spread between your purchase price and what you are selling it for)...
Just a couple things to think about!!
There are huge lists of the pros and cons of both single family and multi's - it all depends on what your goals are and how you are comfortable going about attaining them!
Good Luck!
_________________
Matty Kling[ Edited by mattfish11 on Date 06/17/2004 ]
Well at the risk of a firestorm I'll mention my opinion that there are easier ways to make money in RE than SFR's. Many people start in SFR's because there is a big support structure (gurus, lenders, courses, etc.) which make it relatively easy to get started. But the SFR market is also very competitive and has some big difficulties. Even 2 and 3 units are, in my opinion, a lot of work for the money. Get into bigger buildings, 12 to 80 apartments and the returns make a lot more sense. Especially if you don't count on double-digit appreciation to make your deal work in a few years.
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Especially if you don't count on double-digit appreciation to make your deal work in a few years.
What do you mean by this??
[addsig]
The big barrier to entry of the larger buildings are multiple, as I see it. 1) financing the 20% most lenders want you to put up. 2) getting financing when you've not managed a large building before.
Starting in SFR's is more within the reach of the Average Joe that wants to get started in REI, and has some resources, but not the type of resources that will let them put up 40-50k as a down for a large building. You start with smaller deals, IE SFR's, then leverage your way into the larger deals/buildings. At least, those are my plans, anyway.
Thanks Jam,
That is my plan as well. I am not in a situation that I can lay down 20% for a commercial building. I was looking at a 6 unti commercial earlier this year, but I needed the 20?% down which i didn't have.
I see it like this...there are many paths to the same goal. This is the path I am choosing ...investing in SFR for now...then move to the multi units then to the big boys...along with a rehab here and there..to put some cash in my pocket today to fund investments.
Chris
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On 2004-06-17 13:27, mattfish11 wrote:
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Especially if you don't count on double-digit appreciation to make your deal work in a few years.
What do you mean by this??
Leaving aside the subject of flips and wholesales most SFR's don't really work as rental property (exceptions of course for those where you got a bargain somehow). The monthly rental numbers are not sufficient to pay the debt service, the costs of operations and a return on investment. This fact is disguised by a couple of factors. 1) people value their time at $0. and 2) People assume that the houses will increase in value and that this "appreciation" will make them a good investment. The problem, as they say, is that past performance is no guarantee of future conditions. Although house prices have generally appreciated over the last 50 years (with exceptions in some local markets or some limited times) that does not necessarily mean that they will continue to do so. In fact most of the last 50 years of "appreciation" has not been appreciation at all, it has been the result of the depreciation of dollars. Other-wise known as inflation. The $100,000 house that my parents sold a few years back was not really "worth" that much more than the $28,000 house they bought 30 years earlier (it was the same house). The house had not changed-- what changed was the value of the dollars used to buy it.
Now this period of inflation has been continuing for let us say 70 years. But the period prior to that, say for 100 years, was not inflationary, it was deflationary. The price of things tended over time to go down for most of that period.
So, figuring on appreciation to make your real estate investments worth more is a risky business. One of the nice things about getting out of the SFR market is that you can find deals that work, that pay for the time of management, that can pay for their debt service without inflation/appreciation assumptions.
Chris,
There are several advantages of SFRs and there are certainly disadvantages.
One big advantage is that they are not nearly as management intensive as the larger units. The management intensity goes up as the square of the number of units!(he said, jokingly) The class of tenant for an SFR is likely to be better and their willingness to take responsiblity is generally higher.
Another advantage is that you have a commodity that has a very large market. This generally means that you can sell faster. Also there are more loan products to chose from.
The main disadvantage, as was pointed out by commercialking, is that it is harder to make the cash flow work. I have a few SFRs and they were all acquired at a great discount so they made sense. There are still some areas where SFRs work, but these are dwindling.
If you are planning to be a property owner and are looking to grow wealth that way, SFRs or duplexes are a good place to start. I have found that there is a big jump in time required from managing a duplex to managing a triplex. I would suggest managing them yourself to gain some knowledge. Later you can trade up into larger buildings and you will have the experience to know how to manage a property management company.
Regards,
Ed
Thanks Ed,
That was a good reply. Thanks to all for your posts and comments. Gives me something to think about. As I said before, I am going to start with sfr then move from there. Being diversified is the key!
Chris G
CommercialKing,
I sent you an email with a question on your post. Hope you don't mind...
Thanks!
Hey CommercialKing,
I have been considering becoming involved with Apartments, for many of the reasons you have mentioned.
Regrettably, my standard sources for houses (FSBO and Real Estate Agents) do not help in this arena.
How do you go about finding quality apartments to purchase?
I just completed my first REI and it was my first SFR as well.
Since you are just starting I'd recommend this. Don't rush out to get just a good deal. Take your time and settle for something that will put you at 80% LTV or possibly lower.
In that way, you can keep the rent reasonable but still generate the cash flow you're looking at. In my case, I'm looking at $150 AFTER putting away $50/month for maintenance. In addition, I was able to put a new roof, furnace, and central air in with little out of pocket.
So - SFRs can be done but be patient to find a great deal. Then you can price it to keep vacancies low and cash flow high.