By far, the best type of real estate to own is the single family home rental property. I personally own over 30 single family home rental properties and am fully blessed to have quit my job at 37 years old.
Now I will never work a job again and am successfully unemployed.
Even though there are many types of properties to invest in, I have found that single family home rental properties have been the most lucrative for my business.
Simple Process to Invest in Single Family Home Rental Properties
When you start investing in real estate, the easiest way to purchase a property is with a single family home.
It costs a lot more money to buy an apartment complex and there is a lot more involved in just getting the loan.
The best place for you to start investing is in a single family home. This can actually be up to four units, when it comes to a conventional loan.
If you were to buy a single family home to live in yourself, you can call up a realtor and mortgage broker.
It is easy!
If you bought a home and then rented it out, it is a little different, because you might have a different mortgage, but it is basically the same thing.
Once you get to the fifth property, that turns into a multi-family property and you need a commercial loan.
Instead of it being in your name, the bank requires it to be in your company’s name. This is good, because it takes the liability away from us and puts it on the company.
It is so much easier to get a conventional loan than it is to get a commercial loan. If you have a regular, W-2 job, banks are going to lend to you.
If you go back to the podcast episode about house hacking, I show you how you can use an FHA loan with 3.5 percent down to buy a duplex, triplex, or fourplex, live in one of the units and rent out the rest.
You get paid to live in your own place!
If you are getting a conventional loan, you can still get an FHA loan, which allows you to only put 3.5 percent down.
Let’s say you found a duplex and you bought it for $200,000. With an FHA loan, 3.5 percent down is $7,000.
That will buy you a property you can live in and, by renting out the other unit, they are paying you to live there.
There are three things that the rich have in abundance that most do not.
Those who are educated as the rich are can have these three things in abundance too.
Think what your life would be like if you did not have to work for a mortgage/rent, car payment, insurance, bills, etc.
If you were able to bring in enough money to pay all your expenses without working a single day, you would be among those that are truly rich.
With rental properties, you can create enough passive income to allow you to quit your job, travel the world, and buy whatever you want.
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Any one of these three things will change your life for the better. I have found that by investing in real estate rental properties, you can have all of these in your life.
You will feel more secure, fulfilled, and successful because you have accomplished what everyone dreams of doing. Living the dream of being financially independent and not have to work a job ever again.
I have been on the road to financial freedom with passive income ideas for almost 9 years now and I will quit my job in August of 2016.
Now that I have completely replaced my income with my passive income, I have started planning my escape.
With rental properties, you too can have three reasons working for you every day. Financial freedom can be a reality for you too!
Bonus: 3 Amazing Reasons to Own Rental Properties NOW!
Passive income is to have the money to spend on whatever you want. Feel like buying a Porsche? Want to ski in the Alps with your five closest friends? Want a 5000 square foot home?
All of these are possible for the rich because they have the money to do so. For the Porsche, the rich do not go out and buy a Porsche and pay cash.
They buy an investment that brings in enough money each month to pay for the Porsches’ monthly payment. Once the Porsche is paid off, the rich person owns the Porsche AND the investment that bought the Porsche which continues to bring in passive income year after year.
What would my hourly rate be for working two hours to buy one rental property that brings me $300 of monthly cash flow for years and years to come?
The number is almost unquantifiable since the money created from my two hours of work will always be working for me.
Not until I decide to sell the property and cash out would you be able to find my hourly rate.
But, I do not believe I would ever cash out, but instead, do a 1031 exchange and purchase a property that brings me even more monthly cash flow.
Even if I decide to sell the property and move the money into a better property, my original two hours gained me money from the property appreciating, and that money is still working for me in a new property that makes me more money.
The most expensive thing you can spend is your time. What and who you spend it on is your choice but with a J.O.B. (Just Over Broke), you are forced to spend 40 hours of your 168 hours a week working for a paycheck.
There are not many people who want to spend their time working for someone else.
You can be certain the rich do not want to spend their time doing that. Passive income in rental properties gives you time to do whatever you want, whenever you want.
Want to take a two month backpacking trip through the John Muir Trail in the Sierra Nevada Mountains?
Or walk through Jerusalem, Bethlehem, and visit the garden of Gethsemane, all while being paid at the same time?
Passive income from rental properties allows you to spend an indefinite amount of time doing what you choose to do, whenever you want to do it.
With buying investments that bring in passive income each month, you will not have to work a J.O.B. ever again.
When you are working a J.O.B. you are trading dollars for hours.
The rich do not get paid by the hours they work but on the value they produce.
nstead of working more hours, or trying to find a job that pays more, the rich buy more things that bring them money each month passively.
When I buy a rental property, I work only about two hours on a deal from beginning to end and have money coming in for the rest of my life from that one property.
The property managers, contractors, inspectors, etc., do all the work for me.
I pay them well because I don’t want to do the work, and they are more than willing to do it for me.
Master Passive Income gives you control over the things that bring in passive income and not leave it up to chance, or someone else, to make their investment increase.
When you buy a stock in a publicly traded company, you are buying into the profits and losses of that company.
You, as a small shareholder in the company, have no say on what the business does or does not do.
When you invest in rental properties, you control every aspect of the property and business.
Unlike stocks, where you have no control over the business, you have complete control over your real estate business.
Want to increase rents? Increase the value of the property, and the customers will pay more to live there.
Need to replace an AC unit and want to save money by buying a smaller unit because the original was too big?
That is your choice. Want to pass on a tenant that has bad credit and prior evictions?
Again, these are all in your control. You have complete control over the business and property to do as you see fit.
When you purchase properties as rentals, the best way to go is to “control” the property and not own them.
You may buy your personal residence in your name, but the investment properties should be put into a company you create, like an LLC.
An LLC is a Limited Liability Company that you own and control, and the LLC then owns the property.
Since it is the LLC that owns the property and not you personally, if the property ever gets sued, you are not personally liable with your assets safe. Remember that you “control” the property, not own it.
Single Family Rentals Are Amazing
Think far ahead, past your next few paychecks, to your retirement. What happens when you no longer are able to work for money because of old age?
You may say, “I will have Social Security, a 401k, an IRA, a pension plan from my work, or even a nest egg saved up.” All of these things are good in theory, but this is not how the rich make their money.
You can say, “My money is working for me in my IRA or savings account.” Sure.
But the return is too low, you have no control, and it doesn’t give you the ability to make enough money to design your life the way you want it.
With rental properties, you will have cash that comes into your pocket EVERY month! Each time the tenant pays their rent, you are making money AND building wealth.
Benefits of Buying a Single Family Home Rental Properties
1. Conventional Loans and Using Other Peoples Money
You can still get a conventional loan, including an FHA loan, when you buy a single family home rental. This includes duplexes, triplexes, and fourplexes.
Much different than commercial loans.
Conventional loans have:
- Better interest rates
- Better terms
- Better time frame
- Faster and less paperwork
- You can get 4 properties in your name
2. Higher Monthly Cash Flow and Passive Income
When you have multi units, like 50 or 60 apartments, you have economies of scale, which is great, but your profit per door goes down.
You can demand a higher premium with a single family home rental.
In some areas, you can rent a single family home rental with three bedrooms and two baths for $1,500.
For an apartment with a similar space, you may only get $1,100, because your tenants are going to be living next to each other.
There is less demand for apartments, so you make less money on them.
3. Anyone Can Invest In Single Family Rental Properties
If you buy a 50-unit apartment complex, you will probably need $2 million to put down on the property, which means you would need other investors.
If you wanted to buy a $200,000 property, and you took out a conventional, FHA loan, you only need to put down 3.5 percent, which is only $7,000.
You don’t have a huge dollar amount to start your business.
4. Supply and Demand for Single Family Homes Work for Investors
The supply of tenants is greater, the supply for buying your rental is greater, and there are so many more single family homes than there are multi-family homes. It makes it so much easier, because the price point comes down.
I’ve bought properties from wholesalers, realtors, investors, and Craigslist, because there are so many available. When you buy them a little distressed you can put some paint on the walls and add new flooring and they look great!
When you sell an apartment complex, you are going to be selling to investors, but when you sell a single family home rental, you will sell to investors as well as homeowners.
PRO TIP: Make money when you buy.
You make your money when you buy the property. Since there are so many properties out there, buy a property for less than it is worth.
6. Make Money in Every Market
In every single market — up, down, or sideways — you are still making money. If the economy is going up, I am making money.
If the economy is going down, I am making even more money. I invest for passive income, which is monthly cash flow that goes into my pocket.
If the property value goes up, I make money too.
If the market goes down, that is when I start buying properties. As prices go up, eventually there will be a correction and the prices will come back down.
You need to be ready for when something happens, not just monetarily, but you need to start learning about running your business now.
In a down market like in 2009, people foreclosed on their homes left and right. They couldn’t afford their homes, because they couldn’t afford their mortgages.
The supply is still there, but the amount of renters in the area skyrockets. Everybody needs a place to live. If they can’t afford their home, they will need to start renting, and rent prices do not necessarily go down.
7. They are Always Available on the Market
Single family home rentals are always available to buy, but apartment complexes don’t always come on the market.
Even duplexes, triplexes, and four-plexes can be difficult to come by, because there are fewer of them.
The supply of single family home rental properties is so great, because there are so many people who live in these properties and you can wait for a good deal.
Each property in my business is a piece of inventory. I am concerned mostly about the business as a whole. If something happens to a property, I have insurance to cover it.
8. Longer-Term Tenants Pay All Your Expenses
Your tenants may stay in your property for many, many years, as opposed to apartment complexes. An apartment or other multi family home is usually a stepping stone for tenants until they can buy their own home.
Once someone is in a single family home, they may stay there. They may hate owning a home but like living in a house.
9. You Have So Many Buyers to Buy Your Property From You
If you want to sell the property, you have so many buyers, not just investors.
When you buy duplexes, you will only sell to investors who want to house hack. If you are doing this business right, you are moving from one single family home to the next single family home.
Then you are moving up to the next single family home. You want to keep recycling that over and over, where you get into bigger single family properties, and then eventually multi family homes.
I am personally going to continue buying single family homes, if they are a good deal. On top of that, now I am looking at apartment complexes.
Syndication is my next business I will start investing in. I am looking at syndication, which means I am the primary investor and I have other people who are passive investors that give the company money.
Payments go to the investors every quarter and I do all of the work with apartment complex.
10. The Price is Cheaper than an Apartment Complex
A single family home is so much cheaper than the price of an apartment complex, even if you had to put 20 percent down to get a property.
Paying $20,000 on a $100,000 property is so much less than $200,000 on a one million dollar property. You need a lot more money to buy an apartment complex.
When you buy a multi family property, you are buying a business. The value of a single family home is gauged on properties in the area and what they sold for in the past.
A multi family property doesn’t work like that, because there are not comparable properties, so they base it on how much money the property makes.
If it is 70 percent occupied, it is not worth as much as it would be at 95 or 100 percent occupied. It is a different type of property and it gauged differently to determine the selling price.
11. Tenants Value Single Family Home Rental
Tenants seem to value, respect, and take care of single family homes more than if they were in an apartment complex. When I was younger and lived in an apartment complex, nobody who lived in the apartment complex really cared about it.
They could care less if they damaged something. If they broke the oven, or even if they clogged the drains.
Since it wasn’t their place, they would just call the maintenance person to fix it. They didn’t care that it was their fault.
PRO TIP: Run a Background Check
Run a background check on anyone you are considering as a tenant. For the properties I manage myself, I use Cozy. Check it out at www.masterpassiveincome.com/cozy.
This is a free service that lists your property and they make money when you run background checks through them. It costs you nothing and it has everything you need in order to manage your property.
12. Simple Management Over One Property
It is easier to manage a single family home than it is to manage fifty units. Not only do you have to worry that the facility is in good shape, you have more furnaces that could go out.
There is a lot more you need to take care of when you have more units. When you get above 30 or 40 units in an apartment complex, there is more you need to account for and you may need to hire an on-site manager.
13. Better Quality Tenants
People that go into single family homes don’t have the same mentality as those that go into apartments. If someone is renting a single family home it costs more, which means they may have a better paying job and a higher credit score.
Not saying that there is anything wrong with tenants with bad credit scores. We just want to have good tenants in our properties. The better the tenant, the more money we make.
I have personally found that the people who take care of their credit and background history tend to take care of the places where they live.
14. Tenants Don’t Like To Share Walls
When you have a single family home, your tenants won’t share walls. This means you won’t get bugs that go from one side to the other.
I had a duplex that brought in bed bugs, and not only did they infect the one side, they went to the other side too.
Not only that, your tenants won’t complain about the other tenant being too loud.
Plus, tenants are willing to pay more for a single family home rental than for a duplex or more units attached.
Think about it. If you were living, literally next to another tenant, you probably would rather be on your own.
You don’t want to smell their cooking, hear the noises, or have any issues with a person right next to you.
That is why tenants prefer to live in and stay longer in single family home rentals.
15. Lower Maintenance Costs
With a single family home rental, there is less maintenance due to less square footage and fewer things to take care of.
Maintenance costs tend to be lower. If you buy a newer home, there will be even fewer expenses.
With commerical properties, they tend to have more complex systems in place than a single family home rental.
Now, you will have in the lease that the tenant will pay for the air conditioning but outside of that, everything will be more expensive.
Most times, you will need to hire a company that is certified and bonded. No more handymen to fix your issues.
Same with multi-family homes. There is more wear and tear on your property because of the turnover of the tenants in the property.
It seems that most tenants will stay in an apartment for 1 year or less which dramatically increases your expenses.
16. You Don’t Need a Property Manager for Single Family Home Rental
When you buy a single family home rental, you don’t need a property manager, even if that property is thousands of miles away. The Cozy software handles everything for free.
Build the business first and have contractors ready.
If something needs to be fixed, I get someone out there right away to fix the problem.
I love property managers and think everyone should get one, until you have more experience and own more properties.
Get out there, start investing, and change your lives for the better!
- How to Find a Profitable Income Property Investing In Real Estate
- Invest Now Before the Real Estate Market Crash
- How to Get Business Credit with BAD Personal Credit
- Pay Yourself First If You Want To Be Rich
- How to Prepare for the Housing Market Crash Coming Soon
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