I like income-producing real estate because it provides security of principal, monthly cash flow, equity growth, a hedge against inflation, tax advantages, ease of management and double digit profits. If I were to advise a new real estate investor, it would be to:
Buy Single Family Homes: Don’t Buy Vacant Land Or Commercial Property And Never Buy Condos!
Here’s why: Single family homes have the broadest market appeal. In a softening market, retail, office, and industrial real estate that houses jobs will generally show rental weakness before real estate that houses people (single and multi-family homes). Changes in employment indicators give investors in single-family homes opportunities to reposition faster than investors in commercial property.
Single family homes have lower rates of vacancy than commercial property because people always need a place to live; there are more potential renters for a single family home than there are for a gas station or a big box store.
Single family homes have the most attractive financing terms available for borrowers, usually requiring smaller down payments and longer terms. Single family homes can be purchased with less expensive, fixed-rate financing, with thirty-year amortization and less than 20% down payment. Apartments will usually be financed at a higher interest rate and require 30% down payment, plus a large premium to get an interest rate fixed longer than 5 years, with an amortization period of 20 - 25 years.
If a house and an apartment unit generate an equivalent net operating income, the house will provide a superior cash on cash return due to the better financing available for single family homes.
Single family homes will never become technologically obsolete (although the functionally-obsolete houses may be good buys for an investor).
Single family homes can be purchased in ‘bite size’ portions. If you have the capacity to buy $1,000,000 of real estate you are generally better off buying eight single family houses for $125,000 each than to buy a single apartment building with sixteen units of $62,500 each. This is because appreciation may be greater (although management may be more challenging), with single family homes.
It is easier to sell or refinance one or two single family homes to cash out for equity, rather than liquidate an entire apartment building.
So these are some of the reasons behind the wisdom of buying single family homes first! For a free daily list of Seattle homes for sale that match your home-buying criteria, please contact Wendy Ceccherelli at HomeLandInvestment@gmail.com or call 425.270.7292.