Joe Calloway shares with us why investing in single family homes makes sense.
From large availability to low investment cost to stability through downturns, there’s various reasons why single family homes make sense.
Mike: Welcome back to the FlipNerd.com REI classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Joe: I’m sitting in the REI classroom with FlipNerd. My name is Joe Calloway. My company is called RE360 Real Estate Investments and RE Investor Professor. Today I want to talk about our single family sexy strategy.
Mike: This REI classroom real estate lesson is sponsored by uglyopportunities.com.
Joe: A lot of people say, multi-family, single family, commercial, residential, and today I want to cover why we are so heavily invested in single family properties and the great, great things that come with owning single family rentals, which eventually turn into big money making flips.
So, first and foremost, why I originally got into single families are some of the most important tips to new investors. One – they’re readily available. They are everywhere. It’s not hard to find them. Whether you’re looking with your local realtor, on your MLS, you’re finding them on Craigslist, or on Facebook, they are abundant. Houses needing work, houses being rented everywhere.
The next thing is, you can get into them for a relatively low amount of money. Whether that’s using through creative finance, or you just have $10,000, $20,000, $30,000, $50,000 or $100,000 on your own, you can immediately invest in these properties. Unlike a multi-family property, which may need big money and capital contributions right off the bat.
The other thing is, it’s a manageable thing. For a first time or new investor to buy 1, 2, 3, 4, or 5, or 100 houses, you can do that and scale that as you see fit. It’s not like you’re jumping in and going all in on a 100,000 square foot commercial shopping center development. You’re buying one house and experimenting with what works and what doesn’t work. But it could also make you some good money, whether you do one house or five houses. So there are the basics of why I got into it. But why are we still do it to this day? Even though we manage 50 units, we have industrial properties, commercial properties, and a big residential portfolio with multi-families, we still love the single families for a couple of different reasons.
One – they’re great in boom or bust times. So when the economy is up, you have a great sellers market. If you have a big portfolio of single family houses that you’ve been renting, that’s a great time to start selling those off.
And in bust times, what happens? People stop buying houses, so where do they live? They still have to live, and they usually rent. So we find, in the down cycle, our rents actually go up and we make more money on our rental portfolio. So when you’re down, you’re making more money in your rents, or when it comes up, you start selling them off at big premiums to the market that wants to buy these houses. It’s a great hedging strategy, in good times or bad.
So the other thing is an exit on a commercial property or on a multi-family property, it’s going to be to an investor like you or me. The problem with that, if you’re a good investor, you’re going to beat me up on the price. You’re going to buy it based on a cap rate. You’re not going to buy it based on emotion and heart. I hope you buy it on emotion and heart, because I want to get the best possible price, but you’re probably not going to. You’re going to buy it on a price point based on income. So there’s not a lot of excess skin on the bone. However, in a single family house, if you’re buying in the right areas, in good areas, up and coming areas, people, when they want to buy houses, they pay a premium because they want to live in an area. They love the bathroom, they love the back yard, they may love the front door. There’s all these other things other than just cash flow that you’re dealing with. So you can get a premium based on the market.
The market may just be this area is so hot because a new restaurant moved in down the block. Now someone’s going to give you $10,000, $20,000, $30,000 more for this house. And that’s the great thing about exiting a single family house versus a commercial property is there’s a premium put on the actual property, not just on the cash flow itself. So, we continue to buy a lot of single families, and [inaudible 00:04:21]. And what we do is, we buy on a cusp area – an area that is up and coming, but not quite there. And we rent at that point, because the rental market is there, but as the market matures, as the market heats up, the buyer market starts to become more prevalent, and then that’s when we start selling, selling, selling.
So not only did we make a lot of money for the one to five years that we rented the property and we made a lot of money on the cash flow from rental income, but then when we sell it, we’re selling it to someone who loves the area that we’re buying in. So, we get the premium when we rent, and we get the premium when we sell. And that’s single family. I love it. Thank you, and we’ll see you soon.
Mike: HomeVestors, the “We Buy Ugly Houses”, folks is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you would like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level, or whether you have no experience at all but a burning passion to be successful in real estate investing, please visit FlipNerd.com/ugly to learn more.
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