The most popular real estate investment for individuals is the single-family homes. The following discussion focuses on why so many individuals chose to invest in single-family homes over other forms of real estate.
It is possible to buy a single family home with 10% or less down payment. This means that you can buy a $100,000 house for only $10,000 down. It is entirely feasible for the average person to save $10,000 to buy their first investment property.
People are familiar with houses. Most people are not comfortable with shopping centers or apartment buildings. They don’t know what the rents are, what repair costs are, etc. On the other hand, most people do understand single-family homes.
More flexibility. Let's assume that for the same amount of money you could either have 5 houses or 1 apartment building. If you needed money, with the apartment you could either have to sell the whole thing, refinance the whole thing, or bring in a partner on the whole thing. With the 5 houses, you could sell one of them, refinance one, or bring in a partner on just one.
Higher equity build up. There is usually more appreciation in single-family homes than in apartments and other types of real estate. Apartment buildings are valued based on the income approach (how much money they bring in). Single-family homes are valued based on comparable sales. This means that your investment houses are valued according to what the other homes in the neighborhood are selling for.
More control. With an apartment building, all of the tenants know each other, and they will know what they pay in rent. That means it is difficult to charge one tenant higher rent than another. Plus, if one tenant plays the stereo too loud or causes other problems, YOU will get the complaints. With houses, they are generally scattered around the area. You can raise the rents individually; offer lower rents to excellent tenants, etc.
Less risk. With single family homes, you don’t have all your eggs in one basket. The homes are usually scattered around the area. With an apartment building, if the area goes bad for some reason (i.e. a factory or freeway goes in across the street) you are sunk.
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