Investing In Single Family Homes

When you are a new investor in the real estate industry you are not sure where to invest and what will bring in good fortunes. Real estate is not a highly liquid asset and you cannot trade it for immediate cash. However, there are ways that ensure that you can also make money by investing with a smaller amount.

It has been observed that a major part of the trading in real estate happens in the middle or lower range of real estate prices. Usually, this range covers single family homes, which is a good pick for new investors.

The popularity of single family homes among the investors is largely due to the steady market that exists for these homes. You simply need to purchase one that fits your budget, decide if you want to sell it or rent it out and fix it and spruce it up. The tax benefits of investing in single family homes are also factors that make it popular with the investors. The best part of it is the finance options available for such homes and the comparatively lower interest rates available on them. Single family homes also get some easy finance options. The interest rates are low and a higher loan to value ratio can also be obtained making it a good choice for the investors’ financing needs. Owner-occupied homes can be purchased at a very low down payment and in some cases there may be absolutely no down payment at all.

Renting out single family homes is simpler than other homes and they are very popular as starter homes with the upcoming couples and the new blue collared workforce. One may easily be able to invest in a few single family homes, renovate them and rent them out at a good rate prevalent in the neighborhood. However, sometimes the rents may not be able to match the mortgage payments unless a substantial amount of down payment has been made. The negative cash flow means an increased burden for the investor. But it is just a matter of breaking even which can happen in a few years’ time as the rents have been on the rise for some time now.

The depreciation that can be charged on such properties makes it a very good tax saving element. Depreciation can be considered as an expense that can help in reducing the taxable income related to the property. In spite of the low rentals and higher mortgage payment scenario, depreciation can be a great factor to reduce the tax liability to a certain extent. The appreciation in the value of the property can also make a significant impact on the profits on sale of such single family homes. Some investors are also able to overcome the negative cash flow situation by offering such homes on a sale-on-lease option basis. The lease payments may be considered as the down payment and a higher payment may also be charged for the same reason.

When buying a single family home the investors have to be careful about what is being bought. If they are unable to sell there single family home because of the substandard construction, building code violations, faulty floor plans and the deteriorating quality of the neighborhood then their investment is bound to fail. On the brighter side, there could be areas which have been affected by the economic recession. These can make for a good investment opportunity at a great bargain. They can bring in good returns if the investor is able to hold the property till the market situation improves. Overall, the single family homes are a good investment option for the investors.

Written by: VD

Date Written: 03 July 2008

Reviewer Assigned by: David

Reviewed by: HS

Quality Control: AG

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Quality Control Completed on: 07/07/2008

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