Source: CashFlowPropertyNetwork Newsletter (excerpted)
Single Family Homes
This is the most popular vehicle for investors that are starting out. But just because single family homes are favored by beginners doesn’t mean that there aren’t very experienced and successful investors in this market. So, what are the benefits of investing in single family homes?
Generally speaking, when compared to other types of properties, single family residential homes appreciate first and most in good times and depreciate last and least in bad markets. One of the reasons for this is that the pricing of single family homes is largely affected by the emotional attachment that people have for the home they own and live in. Another reason is the concept of the 30 year fixed rate mortgage that allows people to easily finance large home purchases. Most family’s home budget decisions are driven by the size of the monthly payment, not the price tag of the house.
Renting single family homes is very easy to do. Finding solid tenants that commit to year long leases is a simple job for good property management companies. And if you select the right properties, in the right areas you will find that generating enough rental income to turn a monthly profit is not difficult. And don’t forget that the interest on the mortgage, advertising expenses, repairs, improvements and investment related travel are usually tax deductions. In addition, the IRS allows you to depreciate the value of the home and take more deductions, even as the market value of the home appreciates!
Buying your first investment is not an easy decision. It is considered more entrepreneurial than buying 100 shares of stock for example. But the up-front money can be very reasonable. Investors who are looking to get the best leverage from their money can put as little as 5% down on rental properties. The properties that perform best in the Cashflow Property Network analysis are typically priced between $120-240k. With these numbers, you can get your first property with an upfront cost-to-close of less than $15k, and still have a $1k mortgage that is covered by the rental income. With this model you can build your portfolio quickly and generate very large returns on your money.
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