Advantages to Buying Single Family Homes in Real Estate Investing

Most real estate investors agree that although single-family homes don't provide superior income opportunities for average investors, they do offer some advantages. For example, houses can be much easier to sell than apartment buildings, shopping centers, retail stores, and office space. If an investor needs to liquidate, houses can be one of the easiest types of real estate to sell in a hurry because most house buyers are consumers rather than investors. Another advantage to homes is their price in relationship to that of apartment buildings and commercial property. It can take a lot less money to buy a house than it might to buy other types of real estate.

Patient investors can purchase a house each year to move up a portfolio ladder. For example, you might buy a house this year to live in. ( Down payment requirements for owner-occupied homes are very low). Then, after living in the home for a year, you might rent it to a tenant and buy another house to live in. because you live in each house you buy, your down payment is lower than it would be for an investor. If you started this process when you were 25 years old and stopped it when you retired at age 65, you would own 40 houses to support you in your retirement years. Some of these houses would be paid for, others would be partially paid for, and your rental income would be on track with the rate of inflation. This is not a bad plan. If you can act as a general contractor and build yourself a new house each year, as I have done in the past, the profits are sweeter.

When you buy single-family homes, you have the ability to mix the locations of your rental property, which can be an advantage. If you buy a 12-unit apartment building, all of your apartments in the building are basically in the same location. Therefore, a mistake in judging the property's location could devastate you financially. If you buy 12 houses in 12 different areas, however, one mistake in judgment will not drag you down. It's like the law of physics: for every action, an equal but opposite reaction occurs. This concept applies, to some extent, to how investors find their own niches in the real estate market.

Negative cash flow is common with houses used for rental property. Of course, not all houses experience cash losses. Some can be rented for enough to pay all the expenses of owning and operating the houses as rental properties. When negative cash flow occurs, investors must be willing to subsidize their investments until inflation and appreciation allow the income to swing in a positive direction. It's possible to find a house that you can buy and rent immediately, and experience a positive cash flow. Part of the puzzle is the amount of cash you apply to the purchase of the home. Other factors include market rents, management costs, and necessary improvements.

Should you buy a single-family home even when you believe it will generate financial looses during a year? It depends on your financial strength and your future plan as an investor. A lot of people try to invest in properties that will pay for themselves from the first day of ownership. The burden of buying such properties is a heavy one. Sometimes you can be better off in the long run by purchasing a house that will not make money right away. However, you must be prepared to shell out cash each month to keep the property viable until conditions change and create a positive cash flow.