Nothing is as Easy to Buy, Sell, Rent and Manage as Single-Family Houses
Single-family houses are the easiest to understand of all real estate investments and the easiest to liquidate. Most people in the United States live in houses, so we are familiar with the care and maintenance a home requires.
The thing about houses that makes them so attractive as an investment is that they provide cash flow, appreciation and a hedge against inflation. They also have a low barrier of entry. A well-located investment house in the United States typically falls into the $100,000-$200,000 price range.
Relatively speaking, that’s a low price point for entry compared to commercial real estate investments. Commercial real estate investments also require more sophistication, are more difficult to find, are more difficult to exit and have more risk associated with them.
There’s Nothing Like Single-Family
I’ve dabbled in apartments and mixed-use buildings that included offices and apartments. Nothing—and I mean nothing—was as easy to buy, sell, rent and manage as single-family houses.
The problem with commercial real estate is really centered on the financing and the exit plan. The biggest distinction between the exit plans of single-family houses and commercial real estate is the end user. You see, the end user can be an investor who rents it out, but a homebuyer who wants to live in a property will pay more money for it. Homeowners buy for emotional reasons, and that will always fetch a higher value in the right areas.
A good example is a home in Villa Rica, Ga., which we acquired in mid-2014. We paid $104,000 for the property, and we rented it out for $1,300 per month. Our tenant moved after one year, and the next tenant bought it after just three months of tenancy for $180,000. This property closed in 2015. If sold to an investor, the house would have brought in $140,000.
When you acquire well-located single-family houses in growth areas of the United States, you have the potential to sell to future homeowners who simply will pay a lot more than an investor. And candidly, the most money made in real estate is not necessarily the cash flow and the benefits of depreciation—it’s actually in the future appreciation of the house.
This is not the same for commercial real estate. Office buildings, medical buildings, strip plazas and apartments are acquired based on cap rates, which are based on net operating income.
To summarize the advantage of single-family house investments:
• Low barrier of entry
• Direct control
• Cash flow
• Appreciation
• Easy to liquidate
• Tax benefits (depreciation)
• Easy to finance
Three Thought-Provoking Questions
My greatest mentor in real estate was a man named Jack Miller. I loved Jack, as did many others, and he was my “rich dad” (as described in the book “Rich Dad Poor Dad” by Robert Kiyosaki).
Jack always asked three important questions: How much money would you need each month if all your bills were paid and you had no mortgages? How many free-and-clear houses would you need to attain that monthly income? And finally, how much would those houses cost?
When you can answer those three questions, you’ll know how much money you need to obtain those houses in order to receive that income. You’ll know what you need to be financially free, and you will be able to live life on your terms. Of course, if you’re young, you can buy houses highly leveraged, and with proper property management, you will one day be free and clear.
Isn’t that really what you want?
The thing about single-family houses is when you plan your investment strategy with a clear goal in mind, you can achieve it—if you stay with it and don’t deviate from your plan, that is.
There are no other investments under the sun that offer the safety, cash flow, depreciation and appreciation that single-family houses do. The key is to buy in areas where people are moving to—not away from!
Why the United States
WHY THE UNITED STATES
The United States must look like a political circus to the outside world. But, at the end of the day, we have the strongest economy, rule of law and more freedom than anywhere else in the world. While our economic engine isn’t full throttle, it looks a lot better than the rest of the world.
When you add it all up, there currently is no safer place in the world to invest with low risk than in the United States. However, the United States has 50 states and more than 250 cities. Real estate is local in nature, and all areas do not increase or decrease in value and cash flow the same.
Here’s Our Dirty Little Secret
At my company, we’re insanely selective about where we invest, based on our specific goals, in this order:
1. Safety
2. Upside potential
3. Cash flow
While it’s true that every house has tax advantages, that is not a good reason to invest. Invest only for the reasons that are right for you and help you achieve the financial goals you’ve set for yourself and your family.
There are many markets in the United States that could work for you, and you should select a market based on your goals and comfort level. On a personal note, I’ve acquired houses in more than 50 cities and 12 states. I only acquire to hold properties in the metropolitan Atlanta area.
Why Atlanta? My gosh, there is no place like the beautiful city of Atlanta.
Consider the following:
• Diverse employment sectors
• 25 percent of Fortune 1000 companies have operations there
• Pro-business state
• Strong in-migration from the Northeast to Atlanta
• Transportation hub of the Southeast
• Low property taxes
• Low insurance
• Ranked No. 1 business climate in the United States
• Average income growing faster than national average
• Disposable income rising
• Over 35 percent of adults have a bachelor’s degree—national average is 29 percent.
• High tech and information industry is more concentrated in Atlanta than nationally
• Atlanta is still affordable, compared to other markets
• Moderate climate
• It’s a beautiful city
Folks, I’ve let you into the thinking that has changed my course of investment. We only pursue houses in this area of the country for our buy-and-hold strategy. The income you can generate from well-located single-family houses can replace the income from your job.
That’s a pretty cool goal to have—wouldn’t you agree?
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