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6 Reasons to Invest in Single-Family Homes

“I would say that single family homes are cheap now. If I had a way of buying a couple hundred thousand single family homes… I would load up on them, and I would take mortgages out at very, very low rates. So it’s a very attractive asset class now.”

~ Warren Buffett

Warren Buffett made this statement on CNBC February 27, 2012. I agree with Warren Buffett that single-family homes are an outstanding asset class for investors. I like single-family home investing a lot better than gold, stocks, bonds, or mutual funds.

Here are six reasons single-family homes make great investments.

1. Leverage – Maximize Your Return on Investment

Learning to use other people’s money for your investment will allow you to leverage your single-family homes 100%, which provides an infinite return on investment.

Instead of investing your cash and using your credit, you can learn to buy single-family homes and invest your knowledge into your deals.

Even if you decide to finance with a bank, you’ll likely be making a 20% down payment on your single-family home.  If you buy a single-family home for $100,000, you’ll need a $20,000 down payment as your investment, but the cash flow you create will be a strong return on that $20,000 investment.

2. Growth – Equity, Amortization, and Appreciation

All investments are expected to grow.  There are a number of ways that single-family homes will grow your investment.

single family homeBuffett is right that houses are still cheap. On top of the overall pricing being attractive, real estate investors know how to buy houses on sale in every market. A $100,000 house can be bought for $70,000, which creates $30,000 of equity upon purchase.

Additionally, if you finance your purchase with with a bank, you will enjoy amortization that comes with principle pay-down, so you owe less on your investment each year.

Buffett highlights the low interest rates in his reasoning for investing in single-family homes and he’s right, as interest rates remain very cheap.

In 2013 the real estate market began to show price upticks in a number of cities. No one knows how this will continue in the years to come. I add it as an additional potential investment advantage.  Real estate tends to be hyper-local, so every market and every sub-market is different.

3. Tax Benefits

As you begin investing in real estate and holding onto your investment, you realize there are a lot of great tax advantages that accompany your investments. For example, rental income is considered to be passive income and not subject to self-employment tax.

Depreciation allows the investor 27.5 years of deductions on your property and the equipment that makes them habitable (heat pumps, appliances, etc.).  Mortgage interest is typically the investor’s single biggest annual expense, but the good news is … it’s deductible. Other expenses that can provide tax benefits can include mileage, home office, repairs, etc.

4. Cash Flow

Cash flow is my personal favorite reason for investing in single-family homes. Investing in hard assets that produce income is a huge benefit of buying and holding single-family homes. Your tenants pay your mortgages and your cash left over after all your expenses is your net cash flow.

Imagine making $300 per month in net cash flow and not having to work much to produce it.  If you invest in 15 houses, you could create $4,500 of monthly cash flow while enjoying all the other benefits of single-family homes.

5. Multiple Exit Strategies

A number of exit strategies can produce great results.

You can be a landlord and enjoy rental income; you can use lease options as your exit strategy; you can sell with seller financing and enjoy income from your note, or you can sell the house outright to a new buyer (flip it).

If you seek to create cash flow and equity from selling with seller financing, please be sure to carefully study the new Dodd-Frank bill as it now regulates seller financing.

6. Invest Locally

Every time you buy a single family home you are investing in your local main street instead of Wall Street. You are improving your local city and neighborhoods one house at a time and providing housing solutions for the people in your local market.  It’s rewarding working locally and helping to improve our local markets and a huge side benefit of investing in single-family homes.

How about you? What are your top reasons for investing in single-family homes? Do you agree with Warren Buffet that now is a great time to invest in real estate?

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About the Author...

Jim Ingersoll is a real estate entrepreneur who has bought and sold hundreds of homes. He is the author of Investing Now and Cash Flow Now (both available at Amazon.com), and enjoys speaking and coaching others on how to obtain their financial freedom.

You can visit Jim at http://www.bigmoneyinvestor.com/ and http://www.investingnownetwork.com/

You can find Jim on Facebook and Twitter.

Comments

  1. Sheena Prattis says:

    Hello.

    Thank you for providing all the information you do to help others like me get on the path to investing successfully in real estate.

    I ‘attempted’ to purchase my first real estate investment property. I put several offers together and submitted them. Within 30 minutes, the seller’s realtor emailed back stating the offers were declined- no reason explained. Can I ASSUME the offers I made were too low? I’m not sure what to do at this point- if I should try and get an explanation or maybe my offers were an insult… just not sure.

    • I’d like to know where Buffett is getting his mortgage loans on investment property. Even with 20% down, I can’t get a bank loan.

  2. susan kempf says:

    I would love to invest in real estate, but Orlando, Florida is not a good market. People are getting more money for their houses than the asked for, the bidding here is so competitive. Any ideas on how to get aroung that? Thanks, Sue

    • Rocio Z, says:

      Susan, Im from Florida and inveting in West Palm Beach, Broward counties. I would suggest you to look for SFR in Saint Petersburg and the Tampa area. Based on the state job statistics the Tampa are is creating a lot of jobs and you can find very good deal in the area. I hope this info serves you.

  3. Sheena and Susan

    thank you both for your comments.

    It is harder to buy foreclosures for sure. Less inventory on the MLS and more investors bidding and sometimes paying too much.

    It is a great time to learn to buy the deals that are off-market and not on the MLS. That way there are not bidding wars.

    Jim

  4. Terrell says:

    Jim, I have been listening to your training moduels and with in two weeks I have two houses under contract. Thanks for you help!

    I am now looking for private investors to finance 1 of my deals, and I am going to say you are my coach to build credit.

    By the way do you know anyone who would invest in the NJ area for 8%-12% on their money secured by real estate?

    Reply back
    Terrell

    • Jeanne says:

      Terrell – That is great! Just a reminder that there’s a coaching call tonight. Will you be on it? I’m sure JP and Jim would love to hear from you. ~Jeanne

  5. Jim Ingersoll says:

    Hi Terrell

    Congrats to you for taking action!

    Way to go and I am so glad your using the information you are using!

    Jim

  6. Wkasp says:

    I own a primary residence but would like to purchase an investment property. I wouldn’t qualify for an additional loan and don’t have enough equity built.

    How are people able to purchase multiple homes??

  7. Jack Zagoria says:

    How in the world can a single family house make money in the long run?
    Lets say you get $800/mo. in rent
    On a $60 k house a mortgage might be about $300
    Taxes $200
    Insurance $70
    Prop manager $90 ( 10%)
    Maintenance $200 (long term after you fixed the roof, hot water tank, the tree that fell into your neighbors property, the kitchen cabinet door that “mysteriously” fell off when no one was around etc)
    Miscellaneous. $25-50 its always there (an eviction, a tenant that leaves and doesn’t tell you, the again mysterious boat that appears by your curb and the resulting sanitation fine)
    That’s about $950/ mo.
    What am I missing?
    How does this even break even on a cash flow basis?

  8. Robert Londono says:

    The only way of really making this work is by paying cash for the property. Taking out mortgage plus all of the other expenses you pointed out add up quick and its not worth it. You are correct, all it takes is one bad tenant to destroy your house and there goes your profits for the year… shoot maybe the next 3 years!! Ive seen this happen to my investor clients…. I remodel homes for investors. When the tenant moves out, some of my clients have to invest $15,000 to repair and bring it to marketability. I say the better investment would be commercial properties and apartment buildings.

  9. Glenna Price says:

    Where is the best places to buy apartment buildings? What do you think of Knoxville, Tennessee; parts of Texas; Colorado, etc?

  10. Owner Finance OKC says:

    Very interesting and informative. Thanks!

  11. Sooner House Buyers says:

    That’s a great idea. You should add more info like this. Thanks for sharing this article.

  12. KC Johnson says:

    Do you think that it is still a good play to purchase single family homes given the strong home market?

What do you think? We would love to hear your opinion.

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