I love investing in long-term rentals and fix and flips because of the money you can make from them. There are many ways to invest in real estate, from buying shares of a REIT, to purchasing or developing large commercial projects. I have researched many ways to invest, from stocks to franchises and real estate was the best investment. I have 16 single family rental properties, and each one is giving me over 20 percent cash on cash returns. I go through exactly how I get these returns in my complete guide to purchasing long-term rentals.
You must buy properties cheap to get great long-term returns
The main reason I get great returns on single family rentals is I only buy properties that are below market value. Good deals are hard to find, but they are out there if you know how to find them. I try to buy properties at 70 percent to 80 percent of market value. Usually the properties are cheap because they need work or have very motivated sellers. Not only do I make money as soon as I close because I bought the property below market, I almost always add value through repairs or improvements as well.
I have purchased rental properties that were REOs, short sales, fair market sales and estate sales. There are many ways to purchase properties below market value. Some of the keys to buying properties below market value are making offers quickly, having cash to purchase properties or strong financing and having a good reputation for closing on properties.
Multiple unit complexes may be a good long-term investment for some
In my area, we do not have a lot of multi-family housing, so single family homes are much easier to find. I can find better deals on single family homes than I can on larger multi unit projects, simply due to supply and demand. I know in some areas, multi-unit houses produce great returns, but where I am at I can actually make a better cash on cash return by purchasing and renting out single family homes.
There is no way I could make over 20 percent cash on cash returns with multi-family; I have to pay too high of a purchase price for multi family. If I were to buy single family properties at market value, I couldn’t make 20 percent either, but there are so many more single family properties. More quantity gives me a better chance of getting a great deal on single family.
Single family homes are easier to manage
I feel single family rentals are easier to manage than larger complexes. With a single family rental, I do not have to pay any utilities, the tenants pay them all. In multi-unit properties, the landlord is usually responsible for the water and sometimes electric and gas as well. Many tenants feel a single family rental is their own home, not just an apartment or place to live. They usually take good care of the property, and even fix and repair items themselves. They also tend to stay longer and renew their leases year after year. My parents have had a single family house rented to the same family for 12 years!
Single family homes are less expensive to buy
Single family homes are usually less expensive to buy than large complexes with multiple units. The large complexes bring in more rent, but because of that they are much more expensive to buy. With a single family home, the down payment and repairs are usually less than multi unit properties and the maintenance is usually less as well.
Appreciation is higher on single family homes
Single family homes historically appreciate more than multi-unit properties. Multi-unit properties are valued on the rents coming in and condition, while most single family homes are valued on supply and demand of owner occupied buyers. If rents go up in an area, then multi-family housing prices will rise as well, but only if the rents are raised to meet market rental rates.
I am going to keep buying single family homes because I can get better deals, I can manage them easier, they appreciate more and they require less cash to purchase. In some areas it may make more sense to buy multi-family housing, depending on what the returns are.
For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.