In this blog post, Ryan breaks down why he recommends starting out with Single Family Homes when starting your journey with Real Estate Investing.
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Why I recommend starting with single family homes for investments.
So I kinda have a litmus test here that I that I look things through, and it's kinda this triangle. Right? So I wanna know what I can make the most amount of money.
I want the least amount of effort, and I want the most control.
And when I'm looking at something, those are the things I'm looking at when I'm going through to make a decision on that. And this is one of the reasons why single family homes hit this topic for me. I believe that single family homes are the most overlooked investment for the ordinary person, person like me.
So typically when you're getting started with real estate investing or wanting to get started, you don't have a lot of money. So you're gonna watch videos or talk to people that are saying, hey. Go buy a commercial complex or a fifty unit or a hundred unit or go and put money into a syndication or into a fund, which there are some good and there are some bad with those types of things. But guess what? I don't have a whole lot of control. Okay?
I have less effort maybe with a syndication, but I'm not gonna make as much money as I would do potentially doing that on my own. Now I gotta look at those individually.
The other thing with single family houses, I can get into single family houses with little to no money. And that's something if you're gonna do type of a syndication or commercial or something like that, you're coming up with a significant amount of money, where with single family, I really don't have to.
The other thing that's great with single family homes is the financing is a lot easier than going in to get the type of commercial loan because there's the thing called DSCR, which is debt service coverage ratio. This is a thirty to forty year loan. It's a fixed loan, and it's based upon the debt services being covered. So for example, if, your income is a thousand dollars or twelve thousand dollars a year, they wanna make sure you're one to one point two, which means your debt service couldn't be more than ten thousand dollars a year, which is, I think, nine hundred and fifty dollars a month. So as long as you have that, there aren't a lot of qualifications. You just have to have decent credit. You can't be in a bankruptcy.
You can't be wanted by the FBI, those types of things, charge offs, collections, that type of stuff. But as long as you'll fit those, this DSCR is a really quite easy loan to get as long as the numbers come in for the appraisal, both for the rents and for the value of the property. So the thing is, what I can do with a single family house is I can go I can find a single family house. Now, by the way, the other thing I really like about single family houses is it's an asset.
If I get into a big fund or get into a commercial type building, I probably have other investors. With this, I control this. It's people need food, housing, and shelter. This falls under the shelter of that, and I know that I've got this asset that I can use. I can trade. I can do whatever with, and I control a hundred percent of that asset.
And so then with that, I can find this property, and then I can I can buy it? I can get a hard money loan to fix it up.
And then what I can do is I can create equity. It's called value add. I add value to that property and then I can take it and I can refinance that into a DSCR loan and start cash flowing or at least break even.
You see, with this type of a investment with rental, I make money in a lot of ways. I make money through cash flow. Now I may or may not have cash flow to begin with. The next way that I'm gonna make money is, value gains or also known as appreciation.
The next basically the value of the property goes up over time. Next way that I'm making money with this is debt to pay down, also known as amortization.
The other way I'm gonna make some money is tax write offs.
I know you love my writing. So do I.
Okay. So let's just take a quick look here when we look at, median house prices. Okay? This is one of the other reasons why I like single family houses.
You can see over time, even in this horrible two thousand eight, two thousand nine, you can see this was the high in two thousand and seven. Two hundred and fifty seven thousand was the average, and the lowest went down to two two hundred eight. So if you look at this, it went down twenty percent, two fifty seven to two zero eight. It went down less than twenty percent, actually.
So that's what you're looking at. And then you can see within this was two thousand and seven. We were back up within twenty twelve maybe thirteen so within five to six years the value was back the same as it was even before. So, this is, this is one of the reasons why I really like, single family houses. The other reason why I really like single family houses is this monthly rent.
You can see here these are for single family houses. This is monthly rents, historical rents. You can see that it just goes up and up and up.
And a lot of people are afraid to buy properties because they're worried about maintenance and those things. And I can tell you that with the appreciation that happens, with the rent increase that happens, with the debt pay down that happens, and with the tax write offs, you're crazy not to. Make sure you get an inspection. Make sure you look at the property, know what you're dealing with and what may come up. Or if you're really worried about it, get a hard money loan and do the fix up so you can get those things that may need to get fixed down the road already done, and then refinance into a a DSCR debt service coverage ratio alone.
If you don't have a lot of money, which most people don't, this is one of the only ways to get started because what I'm gonna do is I'm gonna get a hard money loan for the purchase, the rehab, and the closing costs, and put in little to no money, then I'm gonna value improve that and either sell that property or I'm going to rent that property out and refinance into a DSCR loan. So this is a lot easier for the ordinary person to get started with. It's a lot easier. Single family homes are a lot easier for people to get started that don't have a lot of money.
They're a lot easier for people to get started. Don't have a lot of experience when you're talking about commercial deals or apartment complex. They typically want someone that has more experience, to get a loan. You also don't have to go out there and raise a bunch of money.
You can find a good hard money lender and they can help you and lots of times they can do a DSCR loan for you or arrange for that And so you've got less to deal with which comes back to my whole litmus test. How can I make the most amount of money with the least amount of effort with the most amount of control? And I believe that single family houses as investments fall under this. You also have all these ways you make money in a single family house with the cash flow, the value add, the appreciation, the debt pay down, and the tax write offs.
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