Friday, August 9, 2019 / by AJ Shepard
Single Family Homes
One of the best things about investing in single family homes is it is less expensive to get started. Your down payment could be as low as 3.5% if you end up living in the home for at least a year. After a year, you could move into another home put another 3.5% down payment and repeat. Another option is to purchase a fixer-upper home with a 20% down payment, fix it up, rent it out, then refinance it. That will hopefully get your down payment back so you can do it again. Pro tip - when looking for an investment property, make sure it will cashflow after all your expenses.
With either option, make sure you have enough money in reserves to account for refinance overruns, or unexpected expenses like higher taxes, leaky roofs or vacancy.
For this discussion let us talk about 2-4 unit buildings to keep it simple. Obviously, these cost more than then a single-family home and usually require at least a 20-25% down payment unless you are going to live there. All this means that your down payment is going to be larger. They do usually cashflow better than single family because they are usually more cost effective. What I like best about multi-family is that their value is based on their profit. The greater the profit, the higher the price.
There is always plenty of single-family homes available, but a small amount that fit the criteria to be a good rental. Though there are less multi-family homes available, finding the right one might be a little easier.
When you finally decide it's time to take some of the equity that you built up, you have two options. 1. You can refinance it and pull 70-80% of your equity out. 2. You can sell it and get 100% of your equity back (minus any selling fees and capital gains taxes). There is the option to do a 1031 exchange and differ your taxes but that is a post for another time. It will be easier to sell a single-family home as you can sell it to another investor or someone in the retail market. Multi-family homes will be harder to sell because it is a smaller niche in the investment community.
Ease of Getting Started
Getting started is going to be much easier with single-family homes. In fact, I started out with condos and was very successful. Because of the lower price points and smaller required down payments, single family are much easier to obtain and manage.
Whichever you choose, it will be the right decision for you. It is less important which option you choose as long as you do your research and fully commit.
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