Today’s investment environment is shaky at best. Many people who planned on retiring early cannot. The hopes and dreams of many hard working Americans have been destroyed by “the big boys.” Why is it that the guys at the top always seem to take advantage of the working class? When will the guys at the bottom of the pyramid stop trusting these people who say one thing and do another? Is your 401K heavily invested in corporate stock? If so, good luck!
For those of us who don’t make millions of dollars per year serving as the CEO of a large corporation, security can seem fleeting. All anyone really wants is enough income/assets to be able to enjoy the good things in life. So, what’s the answer?
BUY SINGLE FAMILY HOMES FOR PROFIT
You may not get rich quick, but you will get wealthy in time. Owning and managing SFH’s for profit is the hare’s approach to wealth. Leave the stock market to the rabbit type investors. If you want security, if you want stability, if you really want to pile up money (equity) on a regular basis, buy Single Family Homes to rent out.
Let’s review the advantages and characteristics of this great investment:
1. From a privacy standpoint you can own 1 or 100 SFH’s and no one will know exactly how many you own. This helps prevent lawsuits against owners from jealous “Get-Rich-By-Suing” types.
2. Liability exposure for SFH investors is lower than other types of real estate investment (e.g. apartment buildings & office buildings). The larger the apartment complex, the greater the chance for resident dissatisfaction and class action lawsuits against the owner (the “us” against “them” mentality).
3. The owner/manager of an apartment complex must treat all tenants equally or risk mutiny. Whereas, the SFH investor can make independent decisions without the threat of group retaliation. This does not mean that the manager of an SFH can discriminate, but he can make rent increase decisions, etc. based upon tenant compliance with his rules.
4. SFH tenants are more likely to perform minor maintenance than apartment dwellers or office tenants. Rental discount incentives work to lower the owner’s expenses and increase his bottom line profits.
5. The SFH investor must learn to resist the temptation to buy houses in marginal areas. It is key to the successful SFH investor’s selection process to buy neighborhoods, not individual houses. Thorough investigation of neighborhoods will yield increasing values that will build wealth beyond belief. Houses should be selected in those neighborhoods which meet the needs of the greatest numbers of average middle class people.
6. Surveys show that over 90% of house buyers prefer the 3 bedroom, 2 bath arrangement. Since the SFH investment will ultimately be sold to a home owner (for maximum appreciation realization), it is logical to build a portfolio of these desirable properties
7. Furthermore, investing in these “middle of the road” properties will attract a higher quality of tenant and yield a greater return on investment. More expensive homes can be bought with a greater discount, but will produce less cash flow. For example, in my area rents top out at about $1,500 per month. In other words, a $200,000 house may rent for $1,500 per month and a $400,000 house may rent for the same amount. Rents stop increasing, but property values don’t. Therefore, it is illogical (from a cash flow standpoint) to buy “upper end” properties as investments.
8. When considering appreciation rates it is best to purchase at or slightly below the average priced home in the area. Once again, using my area as an example, the purchase of homes below $100,000 will yield greater appreciation rates than those above $100,000. Since very few homes are being built under $100,000 in cost, as the above $100,000 range increases in value, the below $100,000 range is “pulled up” at an increasing rate of appreciation.
9. Another advantage to buying average priced homes is that good tenants will compete actively, paying the highest prices under the most stringent rental conditions and over the longest possible period of time in the market place.
10. A final important reason to buy houses with the description referenced above is that these houses are easily financed by the ultimate buyer---- a homeowner. A homeowner will look at the house (when you are ready to sell it) as an emotional purchase, not after analyzing “the numbers.” Therefore, the investor’s yields will be greater than comparable commercial or multifamily real estate investment.
What is the future of Single Family housing as an investment? This type of housing will maintain its unique status as both an investment and a consumption item. This status encourages many families to include home ownership as a part of their “American Dream.” As one apartment dweller recently told me, “renting your own home has status, most (non-¬student) tenants are not happy until they can rent a house.” Consequently, investing in “good” houses located in “good” neighborhoods will continue to yield great returns.
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