by James Pockross
For some of you just starting out, it is hard to decide which type of property is best to start investing in.
Many of you are probably just like me when I first started out in real estate. Attending meetings with recent graduates of the how to get rich weekend seminars. Working with real estate agents that are not investor savvy. Endlessly driving by and walking to properties that might offer the best deal.
Most of the investors who attended the meetings were newbies who were purchasing single family homes and renting them out. I wondered whether this was a better strategy than buying multi-unit buildings. I sat down one day and weighed the two options against each other. The chart below shows how analytical I can get regarding which direction to follow and should be able to help you make sound investment decisions:
Investing In Single Family Homes vs. Multi-Unit Properties
There are more of them than multi-units therefore there are many more motivated sellers.
Financing is easier to obtain.
If need be, you can live in it.
Value increases based on market conditions, not on the buildings income and expenses.
Sellers are less sophisticated.
Its easier to get creative financing such as lease with option to purchase.
There are many more unsophisticated buyers.
You can fix it up cheaply and raise the value.
Its easier to manage.
It may be subject to fewer government building inspections and regulations.
You dont have to mediate tenant disputes.
Tenants stay longer, because they tend to be families who take pride in their home.
You can often get in with a lower down payment.
Its easier to geographically diversify your economic risk (better to own six houses with one in a deteriorating neighborhood versus owning a six-unit in a deteriorating neighborhood).
If you sell, there are a lot more agents who sell houses versus multi-units.
If you sell, there are many more buyers of houses than multi-units.
There are many government-funded programs to help home buyers, such as low interest and forgivable loans.
Property insurance is more available for houses than for multi-units.
Utility costs can more easily be passed on to the tenant in a house.
Its either 100% occupied or 0% occupied. A vacancy is brutal on the cash flow.
Multi-units usually offer a better chance for a positive cash flow. Many houses are negative cash flows.
Multi-units are more cost efficient a new roof on a four-unit doesnt cost four times a roof on a house.
One bad tenant in a house can really hurt.
Houses rent to families (plus pets). This can increase maintenance expenses.
Houses are more likely to have children, which increases the liability risk.
An empty house is more likely to be vandalized than an empty apartment in a multi-unit.
Houses cost more per unit.
Cosmetic improvements and better management can have a greater impact on the value and cash flow of a multi-unit versus a house.
FNMA lending limit on houses.
After mulling over the pros and cons for several hours, I decided to look into multi-unit properties. I felt they offered me a better chance for a positive cash flow.
I hope that this comparison chart is a great aid for helping you get started in real estate investing.
James S. Pockross has been a real estate investor for twenty-six years and currently controls 270 rental units. He is past president of Lakeview Developers Association and served as an officer of Lincoln Park Builders Club of Chicago. The City of Aurora, Illinois selected his property for its annual Excellence in Property Improvement award.
Mr. Pockross is author of, “Confessions of a Real Estate Mini-Mogul” and received a B.S. from University of Illinois, where he was Phi Beta Kappa and a Masters in Business Administration, with honors, from University of Chicago. James also owns an insurance agency specializing in health insurance for small companies.
Mr. James Pockross enjoys sports, the stock market, duplicate bridge, and travel. James Pockross is married and claims the boss of the house is their cat, Mimi.
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