Should you invest in Single Family Homes or Apartments?
I prefer to invest in single family homes. There are certainly others that prefer apartments, but my 30+ years of experience keeps me in the single family rental market, Here’s why…
#1 Affordability – I can buy a nice single family home in North Jacksonville for about $40,000 that will rent for around $800 monthly. The resultant net-net cash return will approach 15%. Cap rates this high are seldom obtainable in the apartment world. When I make an offer on a house, my competition is usually a small investor. Buying apartments at a good price is difficult as you are often competing with buyers that are highly experienced and have deep pockets. Competition drive the price up. Also, apartment owners know what their property is worth and they are generally less motivated than homeowners. In single family, it is much easier to find motivated sellers and to negotiate a good deal. There is also a limited supply of apartments for sale at any given time. There are simply more houses to choose from, which interprets into more opportunities for good deals.
#2 Divisibility – Single family homes can be purchased, managed, maintained, financed and sold on an individual basis. This gives you much more flexibility. It also limits your exposure to external factors. If I have 50 houses in various neighborhoods and HUD builds a low-rent apartment next door, I might have to lower my rent on one house to compete. If you own a 50 unit apartment complex, any negative neighborhood event can decimate all of your cash-flow at once. Another factor is financing and sales. I can sell one house to raise money. The apartment owner will have to sell everything or an “undivided interest” which will take longer and require legal work and possible conformity with securities laws. I can sell a house, be closed and have my money in a week or less.
Ok that’s my case for investing in Single Family Homes. Now I know that nothing is more fun than placing that red hotel on Park Place when playing Monopoly. In real life however, I don’t believe that there are any advantages to investing in multi-family that cannot be duplicated with individual houses at a lower price and with a higher safety factor.
What do you think?