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The Rich vs Poor Mindset: Which Mindset Do You Have in 2023?

March 13, 2023 by Marco Santarelli

What is the difference between the rich vs poor mindset? How do the successful differ from the rest of us? So many people do not obtain financial freedom because they do not have one thing: the right mindset. Everything starts with how you think about money, wealth, and success. It is not a matter of luck, birth, or connections.

The biggest differences between rich and poor people can be traced back to mindset, outlook, and behavior. The rich and the poor don’t only differ in how much they have in their pocket, but also in how they think. Rich people have a way of thinking that is different from poor and middle-class people.

They think differently about money, wealth, themselves, other people, and life.  By doing so, you will have some alternative beliefs in your mind from which to choose. In this way, you can catch yourself thinking as poor people do and quickly switch over to how rich people think.

A positive attitude, focusing on doing the right thing overlooking good, becoming a continual learner and careful risk management are all differences between the rich and poor. This reduces their odds of becoming poor after disaster strikes, and it helps them achieve their financial goals over the long term.

A rich mindset will tell you to be self-sufficient & build multiple streams of income. It will tell you to build a team of smarter people than you to leverage the efforts of talented people. The mindset of the rich is the most decisive reason why “the rich keep getting richer, while the poor get poorer.” Bill Gates has been quoted as saying, “If we weren't still hiring great people and pushing ahead at full speed, it would be easy to fall behind and become some mediocre company.”

So, which mindset do you have? Let's examine twelve startling differences between how rich people think and how poor or middle-class people think.

Rich vs Poor Mindset

1. Rich People Believe “I Create My Life”

rich vs poor mindset

Poor mindsets believe “Life happens to me.”

If you want to create wealth, it is imperative that you believe that you are at the steering wheel of your life; that you create every moment of your life, especially your financial life.

Instead of taking responsibility for what's going on in their lives, poor people choose to play the role of victim. Of course, any “victim's” predominant thought process is “poor me.” And presto, through the law of intention that's literally what they get; “poor,” as in money, me.

Here's some homework I promise will change your life. For the next seven days, I challenge you not to complain at all. Not just out loud, but in your head too. I've given this little challenge to thousands of people and several hundred have personally told me that this exercise completely transformed their lives.

2. Rich vs Poor Mindset: Rich Play the Money Game to Win

 

Poor mindsets play the money game not to lose.

Poor people play the money game on defense rather than offense. Let me ask you, if you were to play any sport or any game strictly on defense, what are the chances of you winning that game? Most people agree; slim and none.

Yet, that's exactly how most people play the money game. Their primary concern is survival and security, not wealth and abundance. So, what is your goal? What is your real objective? What is your true intention?

Rich people's big goal is to have massive wealth and abundance. Poor people's big goal is to have “enough to pay the bills…” on time would be a miracle! Again, let me remind you of the power of intention. When your objective is to have enough to pay the bills, that's exactly how much you'll get; just enough to pay the bills and usually not a cent more. You get what you truly intend to get.

3. Rich Mindsets Are Committed to Being Rich

 

Poor mindsets are uncommitted to being rich.

Most of us have good reasons as to why it would be wonderful to be rich, but what about the other side of the coin? Are there reasons why it might not be so great to be rich or go through the process of trying to get rich?

Each of us has a file on wealth in our minds. This file contains our personal beliefs including why being wealthy would be great. But for many people, their file also includes information as to why being rich might not be so great. These people have mixed internal messages around money and especially wealth. These mixed messages are one of the biggest reasons that most people never become rich.

The #1 reason most people don't get what they want is they don't know what they want. Rich people are totally clear they want wealth. They are unwavering in their desire. They are fully committed to creating wealth. They will do “whatever it takes” to have wealth as long as it's moral, legal, and ethical. Rich people do not send mixed messages to the universe. Poor people do.

I hate to break the news to you, but getting rich is not a “stroll in the park.” It takes focus, expertise, 100% effort, and “never say die” perseverance. You have to commit to it, both consciously and subconsciously. You have to believe in your heart you can do it and you deserve it. If you are not fully committed to creating wealth, chances are you won't.

4. Rich vs Poor Mindset: Rich People Think Big

 

Poor people think small.

We once had a trainer teaching at one of our seminars who went from a net worth of $250 thousand to over $600 million in only 3 years. When asked his secret he said, “Everything changed the day I began to think big.”

Another way of understanding this is to answer the following question: How many people do you serve or affect?

For instance, in my business, some trainers enjoy speaking to groups of 20, others are comfortable with 100, others like an audience of 500, still others want 5000 people or more in attendance. Is there is a difference in income between these trainers? You bet there is.

Who are you? How do you want to live your life? How do you want to play the game?

Do you want to play in the big leagues or the little league, in the majors or the minors?

Will you play big or play small? It's your choice.

But hear this. It's not about you. It's about living your mission. It's about living true to your purpose. It's about adding your piece of the puzzle to the world. It's about serving others.

Most of us are so stuck in our egos that everything revolves around “me, me, and more me.” But again, it's not about you, it's about adding value to other people's lives. It's your choice. One road leads to being broke and miserable, the other leads to money, meaning, and fulfillment.

It's time to stop hiding out and start stepping out. It's time to stop needing and start leading. It's time to start being the star that you are.

5. Rich Mindsets Are Bigger Than Their Problems

 

Poor people are smaller than their problems.

Getting rich is not a stroll in the park. It's a journey that is full of obstacles, twists, and detours. The simple fact is, success is messy. The road is fraught with pitfalls and that's why most people don't take it. They don't want the problems.

Therein lies one of the biggest differences between rich people and poor people. Rich and successful people are bigger than their problems while poor and unsuccessful people are smaller than their problems.

Poor people will do almost anything to avoid anything that looks like it could be a problem. They back away from challenges. The irony is that in their quest to make sure they don't have problems, they have the biggest problem of all… they're broke and miserable.

The secret to success is not to try to avoid or shrink your problems; it's to grow yourself so you're bigger than any problem.

It's just an everyday occurrence, like getting dressed or brushing your teeth. Whether you are rich or poor, playing big or playing small, problems do not go away. If you're breathing, you will always have so-called “problems.”

What's important to realize is that the size of the problem is never the real issue. What matters is the size of you!
Remember, your wealth can only grow to the extent that you do! The idea is to grow yourself to a place where you can overcome any problems that get in your way of creating wealth and keeping it once you have it.

Rich people do not back away from problems, do not avoid problems, and do not complain about problems. Rich people are financial warriors and when a warrior is confronted with a challenge they shout: BRING IT ON!

6. Rich vs Poor Mindset: Rich People Focus on Opportunities

 

Poor people focus on problems. Rich people see an opportunity in every situation and work to explore it. 

Rich mindsets see potential growth. Poor mindsets see potential loss.

Rich mindsets focus on the rewards. Poor mindsets focus on the risks.

We're not merely talking about “positive thinking” here, we're talking about a habitual way of seeing the world. Poor people come from fear. Their minds are constantly scanning for what's wrong or what could go wrong in any situation. Their primary mindset is “What if it doesn't work?” or, more bluntly, “It won't work.” Rich people, as we discussed earlier, take responsibility for creating their life and come from the mindset, “It will work because I'll make it work.”

In the financial world, as in most other areas, the risk is directly proportionate to reward; generally, the higher the reward, the higher the risk. People with rich mentalities are willing to take that risk. They work to exploit opportunities even when they don’t have the expertise for it.

Rich people expect to succeed. They have confidence in their abilities, they have confidence in their creativity and they believe that should the “doo-doo hit the fan”, they can always make their money back or succeed in another way. They look for ways to educate themselves to be better prepared for the task.

On the other hand, poor people expect to fail. They lack confidence in themselves and their abilities, and should things not work out, they believe it would be catastrophic.

You have to do something, buy something, or start something to succeed financially. You have to see profit opportunities all around you instead of focusing on ways of losing money.

7. Rich Mindsets Always Focus on Positive Attitude

 

Poor people lack a positive attitude.

Poor is a mindset. It is a lack of hope.

Dave Ramsey, the national best-selling author, once explained the difference between broke and poor is attitude. The broke have no money right now but have a positive outlook; they believe they can do better and can do better when they work toward doing something better. They think they’re doomed to remain in poverty. The little man can’t get ahead. The poor are oppressed by the rich.

They can’t save money because they think it will be taken from them, and they waste money they do save or receive as a windfall on pleasures because they don’t think they can do better by doing anything else. For example, when you think you can’t do better, you won’t finish that challenging degree program or take a second job to get out of debt because there is no point.

Or they think they can’t be wealthy because they believe the lie that most millionaires inherited their wealth and class. The truth is that 80 percent of the rich are the first generation, and less than 3 percent inherited enough to become millionaires.

A negative attitude can hinder those with even a good income. A classic case is being afraid of investing, so you leave money in savings or CDs and earn less than the rate of inflation. Another is seeing money as immoral, so they give it to charities and “needy” friends and family.

They have nothing themselves, ensuring they have no savings for their emergencies or retirement. This is why long-term financial success requires a positive mental outlook. Setbacks like unemployment or massive medical bills are seen as temporary and then worked through.

8. Rich Mindsets Do Not Flaunt Their Wealth

 

People with rich mindsets lead frugal lives.

The public perception of the rich is that they flaunt their wealth. We are lied to when they show “the rich” wearing designer clothes, taking fancy vacations they brag about, and having lavish parties. In reality, a very small number of the truly rich ever live this way, and most who do live this way are high-income earners who have almost nothing saved.

Once the windfall of a signing bonus or record contract is used up, they have nothing. Unfortunately, this image is compounded by marketing efforts to say you have to spend money this way to become rich. Yet wasting money on fancy cars, expensive trips and other trappings of success prevents you from doing so.

That perpetual 500 dollars month car payment and the largest house you could afford to prevent you from becoming wealthy. Most real millionaires live in a house they can afford, and they prioritize paying off the mortgage. They own their cars for years and avoid car payments, though they may buy a used luxury car and keep it running for ten years.

They are content with what they have while they build their businesses and portfolios. And they earn their money honestly. There is a popular myth that most millionaires are liars and cheats. One lie is that the rich don’t pay their taxes, though the top 1 percent pays 40 percent of the taxes.

Another lie is that the rich are dishonest scammers, that they only got wealthy by hurting others. In reality, surveys show that the number one trait of millionaires that they consider key to success is integrity. You can’t stay in business if you’re known for scamming customers or being sued for fraud all the time. Nor can you create the quality relationships that are necessary to build a business network if you’re a liar or cheat.

9. Rich Mindsets Understand The Value of Education

 

Poor mindsets are oblivious to the importance of constant learning or education.

Rich mindsets learn and update their skills throughout their lives.

Education remains a major determinant of lifetime income. Note that this doesn’t mean you have to go to an expensive private college or earn an advanced degree. However, you nearly guarantee you’ll be poor if you don’t finish high school.

One difference between the rich vs poor mindset is that the rich understand the value of knowledge. They’re not part of the 40 percent of adults who don’t crack open a book after graduating high school. They’re reading industry publications to learn more about their field and excel at work.

They’re reading about money management and personal development so that they do better in life. They’re constantly learning. They’ll ensure that they keep up their certifications, and they’ll proactively earn additional certifications to qualify for raises and promotions.

10. Rich Mindsets Are Better At Risk Management

 

Poor mindsets often live in fear of taking new risks.

The rich aren’t gambling with their money, whether it is taking trips to the casinos or taking big risks with penny stocks. They are careful to manage risk. One way they do this is by having the right insurance coverage. They have life insurance, health insurance, and disability insurance so that a personal disaster doesn’t wipe them or their families out. They won't just start a business or investment without analyzing its profitability.

They have emergency funds with several months of savings so that they can cover a major unexpected expense without having to go into debt. They prioritize protecting themselves over spending money on wants. This doesn’t mean they don’t invest in stocks or real estate. It means they do their homework before investing money.

They research the properties and the costs to rehab and sell them before they buy. They research stocks or mutual funds before putting in their money. Educating themselves about various subjects reduces their risk level. And that is why one of the differences between the rich vs poor mindset is that the poor often live in fear of catastrophe, while the rich expect to be able to weather the storm.

11. Rich vs Poor Mindset: Rich People Build Multiple Streams of Income

 

Poor people have one stream of income – their job. 

Poor people put all of their eggs in one basket by being dependent on one stream of income.

The wealthy are known for their work ethic, but there are plenty of people who work hard but remain in poverty. There are several ways the rich work differently. One is that they devote time to planning their financial future. They save for retirement so that they have a passive stream of income before they have to retire from their job.

They aggressively pay down debt and avoid taking on new debt so that their income goes further. They dedicate time to handling their investments while investing every month, whether it is in a 401K or rental properties. If they own a business, they capitalize on it to generate additional income.

It might be licensing intellectual property or renting out one of the suites to generate additional revenue. They may hold a day job but teach or consult on the side to earn additional income. This can be a form of risk management, too, since it gives them a head start if they lose their job or simply want to start their own full-time business.

12. Rich Mindsets Believe in Saving, Investing, And Multiplying

 

Poor mindsets splurge on materialistic things. 

Poor people end up saving nothing to invest.

Rich mindsets save, save, save. They save 10% to 20% of their net income every year. The rich are intentional. They don’t put off saving for the future. They start saving with every paycheck, and they choose not to splurge so they can make that next 15 percent contribution to retirement.

They don’t say they’ll pay off the debt later. They create a plan to pay down debt and follow it, month after month until they’re debt-free. According to “The Millionaire Next Door” and Chris Hogan’s follow-up book “Everyday Millionaires”, most millionaires by net worth either follow a budget or deliberately send a set percentage to savings and live off the rest.

In short, they devise plans and follow them. They set goals, and by focusing on them and constantly working toward them, typically achieve them. Note that it isn’t just money. This is why the wealthy are less likely to be overweight, too. If you’re already used to consistently working toward financial goals, an exercise and diet plan is just one more plan to follow.

Remember, for anyone to cross the line from poverty to wealth, you need to have a change of mindset. If you want to get rich, then you need to change your mindset and begin to see things from the perspective of the wealthy. Hope you liked this article! 


References:

Mindset/Attitude
https://www.youtube.com/watch?v=FdnhKJG6bYk
https://www.businessinsider.com/rich-people-are-positive-2016-4
https://www.thebalance.com/secrets-of-the-invisible-rich-1289824

Intentionality
https://www.chrishogan360.com/investing/how-to-become-an-everyday-millionaire
https://www.healthcare-administration-degree.net/poverty-obesity/

Being Good, Looking Good
https://www.businessinsider.com/how-to-define-wealth-formula-the-millionaire-next-door-2019-https://www.daveramsey.com/blog/millionaire-myth-busters

Education
https://www.kiplinger.com/slideshow/saving/T047-S001-10-secrets-of-the-millionaires-next-door/index.html

Multiple Streams of Income
https://www.getrichslowly.org/nine-lessons-in-wealth-building-from-the-millionaire-next-door/
https://thecollegeinvestor.com/5656/5-millionaire-neighbor-telling/

Filed Under: Getting Started, Personal Development

50 Best Success Quotes of All Time (Updated for 2023)

February 3, 2023 by Marco Santarelli

Best Success Quotes

Best Success Quotes

Success is a journey, not a destination. It is a continuous process of setting and achieving goals, learning from failures, and growing as a person. The road to success is often long and winding, but with the right mindset and motivation, anything is possible. Quotes have a unique ability to inspire, motivate and encourage us on this journey.

They can offer a different perspective, provide a fresh burst of energy and help us overcome obstacles. That's why we have compiled a list of 50 of the best success quotes of all time. These quotes are curated from some of the greatest minds in history, including motivational speakers, entrepreneurs, and thought leaders.

These quotes are updated for 2023 and will provide you with the inspiration you need to achieve your goals, overcome challenges, and live a successful life. Whether you are just starting out on your journey to success, or looking for a reminder of what's truly important, these quotes are sure to inspire and motivate you. So, buckle up and get ready for an epic journey through the wisdom of the ages, as we explore the 50 best success quotes of all time.

Here Are 50 Best Success Quotes of All Time

1. “Identify your problems but give your power and energy to solutions.” — Tony Robbins

2. “You live longer once you realize that any time spent being unhappy is wasted.” — Ruth E. Renkl

3. “The only true wisdom is knowing that you know nothing.” — Socrates

4. “If you are not willing to risk the usual you will have to settle for the ordinary.” — Jim Rohn

5. “Let no feeling of discouragement prey upon you, and in the end you are sure to succeed.” — Abraham Lincoln

6. “Things work out best for those who make the best of how things work out.” — John Wooden

7. “Trust because you are willing to accept the risk, not because it’s safe or certain.” — Anonymous

8. “When your life flashes before your eyes, make sure you’ve got plenty to watch.” — Anonymous

9. “Screw it, Let’s do it!” — Richard Branson

10. “Be content to act, and leave the talking to others.” — Baltasa

11. “Innovation distinguishes between a leader and a follower.” — Steve Jobs

12. “The more you loose yourself in something bigger than yourself, the more energy you will have.” — Norman Vincent Peale

13. “If your ship doesn’t come in, swim out to meet it!” — Jonathan Winters

14. “People often say that motivation doesn’t last. Well, neither does bathing – that’s why we recommend it daily.” — Zig Ziglar

15. “Courage is being scared to death, but saddling up anyway.” — John Wayne

16.”Too many of us are not living our dreams because we are living our fears.” — Les Brown

17. “The link between my experience as an entrepreneur and that of a politician is all in one word: freedom.” — Silvio Berlusconi

18. “The entrepreneur builds an enterprise; the technician builds a job.” — Michael Gerber

19. “A real entrepreneur is somebody who has no safety net underneath them.” — Henry Kravis

20. “Most new jobs won’t come from our biggest employers. They will come from our smallest. We’ve got to do everything we can to make entrepreneurial dreams a reality.” — Ross Perot

21. “My son is now an ‘entrepreneur’. That’s what you’re called when you don’t have a job.” — Ted Turner

22. “As we look ahead into the next century, leaders will be those who empower others.” — Bill Gates

23. “As long as you’re going to be thinking anyway, think big.” — Donald Trump

24. “If you want to achieve excellence, you can get there today. As of this second, quit doing less-than-excellent work.” — Thomas J Watson

25. “Opportunity is missed by most people because it is dressed in overalls and looks like work.” — Thomas Edison

26. “The only place where success comes before work is in the dictionary.” — Vidal Sassoon

27. “Capital isn’t scarce; vision is.” — Sam Walton

28. “Failure defeats losers, failure inspires winners.” — Robert T. Kiyosaki

29. “Some people dream of great accomplishments, while others stay awake and do them.” — Anonymous

30. “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffet

31. “Going into business for yourself, becoming an entrepreneur, is the modern-day equivalent of pioneering on the old frontier.” — Paula Nelson

32. “Poor people have big TV. Rich people have big library.” — Jim Rohn

33. “A goal is a dream with a deadline.” — Napoleon Hill

34. “Every day I get up and look through the Forbes list of the richest people in America. If I’m not there, I go to work.” — Vinnie Rege

35. “Expect the best. Prepare for the worst. Capitalize on what comes.” — Zig Ziglar

36. “People are not lazy. They simply have important goals – that is, goals that do not inspire them.” — Tony Robbins

37. “Nobody talks of entrepreneurship as survival, but that’s exactly what it is.” — Anita Roddick

38. “The best reason to start an organization is to make meaning; to create a product or service to make the world a better place.” — Guy Kawasaki

39. “A friendship founded on business is a good deal better than a business founded on friendship.” — John D. Rockefeller

40. “I’ve been blessed to find people who are smarter than I am, and they help me to execute the vision I have.” — Russell Simmons

41. “I find that when you have a real interest in life and a curious life, that sleep is not the most important thing.” — Martha Stewart

42. “Logic will get you from A to B. Imagination will take you everywhere.” — Albert Einstein

43. “Success is liking yourself, liking what you do, and liking how you do it.” — Maya Angelou

44. “Success is walking from failure to failure with no loss of enthusiasm.” — Winston Churchill

45. “The function of leadership is to produce more leaders, not more followers.” — Ralph Nader

46. “Without continual growth and progress, such words as improvement, achievement, and success have no meaning.” — Benjamin Franklin

47. “Big pay and little responsibility are circumstances seldom found together.” — Napoleon Hill

48. Make your product easier to buy than your competition, or you will find your customers buying from them, not you.” — Mark Cuban

49. “The road to success and the road to failure are almost exactly the same.” — Colin R. Davis

50. “If you don’t have a competitive advantage, don’t compete.” — Jack Welch

Filed Under: General Real Estate, Getting Started, Personal Development Tagged With: Best Success Quotes, Best Success Quotes of All Time, Success Quotes

Housing Market: Should You Buy a Turnkey Property or Fixer-Upper?

January 23, 2023 by Marco Santarelli

Should You Buy a Turnkey Property

The current housing market means you’ll likely pay top dollar for a home that’s considered turnkey — immediately ready for you to move in. Plus, the competition is steep. Perhaps those two reasons are why 52% of American homebuyers are looking for a starter home or a fixer-upper rather than a forever home, according to TD Bank‘s First-Time Homebuyer Pulse, which polled buyers planning to purchase in 2022. If you’re struggling with whether to keep combing the housing market for a move-in-ready home that fits your budget or to take your chances with a fixer-upper, here’s the expert insight you need.

Pros of Buying a Fixer-Upper

Buying a fixer-upper can provide you with advantages that a turnkey home doesn’t offer. Consider the following.

Cheaper Taxes

“Fixer-uppers can be a great way to get a deal on a property and save money on taxes,” said Jeremy Luebke, founder of WeLoveLand. “In many cases, fixer-uppers are sold for less than the market value because the seller is motivated to move the property quickly. This can be a great opportunity for bargain hunters. Additionally, fixer-uppers often come with significant tax breaks. The government offers tax breaks for people who rehabilitate or redevelop properties, so if you’re planning to do major work on your fixer-upper, you may be eligible for some significant tax deductions.”

Flip Potential

“The big advantage to taking the risk on a fixer-upper is the equity you build while improving the value of the property,” said Doug Greene, owner of Signature Properties. “This is the flip potential that exists, while in a turnkey home you are essentially buying the property at full price (i.e., market value).”

Potential for Creativity

“An advantage of purchasing a fixer-upper is the opportunity to put money into the features of your house that are most important to you,” said John Riedl of Easy Cash Offer Florida. “Do you want a modern kitchen? What about a luxurious soaking tub? If you are purchasing a property that is move-in ready, you can find yourself subject to the taste and interests of the past owner.”

Riedl also pointed out that fixer-uppers give you a lot of control over the renovation process by selecting paint colors, floor materials, contractors, and anything else you desire.

Cons of Buying a Fixer-Upper

Time, money and effort are all required when it comes to getting a fixer-upper where you want it to be. Here’s more on the potential disadvantages of going this route.

Renovation Costs

“The cost of labor and materials is near its highest price ever, and if you are hiring contractors to perform work on your home, unless you have a crew on standby, it could be months before the work is done,” said Tony Grech real estate investor and lending expert with Luxury Mortgage. “Just like there is a shortage of home inventory that has driven prices up, there is a shortage of qualified tradespeople as well as a shortage in raw materials due to supply chain issues that stretch back to the beginning of COVID. So you save $20,000 or $30,000 on the price of the home, but it costs you $60,000 to perform the work that you want.”

Effort

Beyond the costs in labor and materials, renovating a home comes with some other headaches and risks,” said Brian Davis, real estate investor and founder at Spark Rental. “You have to navigate the treacherous waters of permits, which involves not just filing fees and dealing with the permit office, but also hassling with inspectors.”

Ryan Fitzgerald, owner of UpHomes also said that renovating a fixer-upper requires a lot of effort. “Renovations are time-consuming and stressful so make sure you’re up for the challenge if you decide to get a fixer-upper,” he cautioned. “If you don’t want to deal with the construction, managing contractors, and living in a home that isn’t finished, a fixer-upper may not be the best choice for you.”

Live Richer Podcast: First-Time Homebuying During Inflation: Is It Worth It?

Pros of Buying a Turnkey Home

While a home that’s ready to move in will likely cost much more than a fixer-upper, there are some definite advantages that are worth considering.

No Renovation Costs

“When you purchase a turnkey home, the price you see is the price you pay,” said Luebke. “There are no additional costs for things like landscape or certain home upgrades. This can be a big advantage when budgeting for your new home. You know exactly how much money you need to bring to the table, and there are no unpleasant surprises down the road.”

Minimal Effort Required

If you’re looking to move in and start enjoying your new home as soon as possible, turnkey home is a perfect choice. “Turnkey homes require much lower effort because you can move right in and start enjoying the home after you unpack,” said Ryan Fitzgerald, owner of UpHomes.

Cons of Buying a Turnkey Home

However, buying a turnkey home also comes with a few drawbacks. It’s up to you to decide if they are worth it.

More Expensive Taxes Upfront

While you can get a lower property tax rate by buying a cheaper fixer-upper, that’s likely not the case with a turnkey home.

“If you opt for a turnkey home, the municipality will have likely already caught up to the new assessed value by the time you move in,” said Greene. “It’s usually the sale of the property that triggers a property reassessment in the system.”

Flip Potential Is Nonexistent

“Buying turnkey is certainly the way to go if you have no desire to make repairs to a home and want it move-in ready,” said Jeff Shipwash, CEO of Shipwash Properties LLC. “Unfortunately, in today’s market, turnkey properties are at a premium. This means you will more than likely have strong competition and will be paying top dollar for it. This results in buying with little to no equity to spare.”

And without any equity to spare, there is no flip potential.

Limited Opportunities for Creativity or Customization

“The home might not be exactly what you want,” said Luebke. “Since the home has already been built, you may be limited in terms of customizations or changes that you can make. The home might come equipped with most, if not all, of the features and amenities that you desire, but there is always the chance that something will not be quite to your liking. This can be frustrating if you have specific ideas about how you want your new home to look and function.”

>>This article originally appeared on GOBankingRates.com.<<

Filed Under: General Real Estate, Getting Started, Housing Market, Real Estate Investing Tagged With: Housing Market, Real Estate Investing, Turnkey Investment Property, turnkey property

5 Worst Real Estate Markets in 2022

December 6, 2022 by Marco Santarelli

worst housing markets

Smart Asset released its list of the worst housing markets for growth and stability.  Topping the list was Flint, Michigan where the glut of inventory continues to linger leading to the chance of home price decline. Smart Asset analyzed house value data from 400 metropolitan regions across the United States. They examined data from every quarter from the first quarter of 1997 until the fourth quarter of 2021.

Of the markets analyzed, not one market showed any sign of a positive price appreciation forecast.  With slow sales and dropping prices, the aggressive investor may be able to pick off some very good deals in these markets. Research, patience, and a sharpened sense of value can land you a great real estate investment.

Click to read about -> The Hottest Real Estate Markets of 2022

Here Are the 5 Worst Housing Markets of 2022

Michigan has three of the five worst housing markets in terms of growth and stability. Flint, Monroe, and Detroit-Dearborn-Livonia are among them. Over the last 25 years, the house price index has averaged an annualized growth of 2.62 percent or less in all three locations.

1. Flint, MI

Like last year, the Flint metro area ranks as the worst housing market of 2022 for growth and stability. Using historical data, they found that the chance a home price dropped more than 5% in value within 10 years of purchase is 45% – the second-worst rate for this metric. Additionally, over the past 25 years, the average home price has increased less than 83% – the 25th-worst in their study.

2. Monroe, MI

About 40 miles south of Detroit, the Monroe metro area ranks as the second-worst housing market for growth and stability. There is a 44% chance of a significant price decline for home buyers and from 1997 through 2021, the average home price index increased by only 83.77% or an annualized rate of return of less than 3%.

3. East Stroudsburg, PA

Part of the Poconos, East Stroudsburg’s housing market ranks the worst for stability in their study and 62nd-worst for growth. The probability of an East Stroudsburg homeowner experiencing a significant price decline is 46% and the overall home price index increased by less than 103% over the past 25 years.

4. Detroit-Dearborn-Livonia, MI

Over the past 25 years, the average home price in Detroit-Dearborn-Livonia, Michigan rose by only 2.62% annually on average. This is significantly lower than the annualized increase for the top housing market in our study (Austin-Round Rock-Georgetown, Texas, at 6.37%). Additionally, Detroit-Dearborn-Livonia ties with Monroe for the third-worst housing market stability score.

5. Rockford, IL

Located in northern Illinois, Rockford ranks as the fifth-worst housing market for growth and stability across all 400 metro areas they considered. If you bought a home in the Rockford metro area between 1997 and 2021, there was a 39% chance the home would have lost at least 5% of its value within 10 years of its purchase. Home prices, meanwhile, rose just 67.25% in that timespan, 398th of the 400 metro areas studied.

The complete list of the worst housing markets in 2022 is represented in the following infographic.

worst housing markets 2022
Source: SmartAsset

Methodology For Worst Housing Markets of 2022

To determine the best and worst housing markets for growth and stability, SmartAsset examined data from 400 metro regions and compared them using the following two metrics:

Stability: This is the probability that homeowners experienced a significant price decline (5% or more) at any point in the 10 years after they purchased the home.

Overall home price growth: The total growth in home prices during tperiodiod we analyzed.

All data comes from the Federal Housing Administration (FHA) and covethe 25 yearsiod from the first quarter of 1997 through the fourth quarter of 2021. They used these two metrics to create our final rankings. Areas received a score of 100 on the stability metric if there was a 0% chance of a significant price decline. The metro area with the highest chance of a significant price decline (46%) received a score of 0. Similarly, the metro area with the highest overall home price growth received a growth index score of 100 and the metro area with the lowest growth received a 0. They then averaged each metro area’s scores over the two metrics, ranging from the highest average score to the lowest.

Top 5 Coolest Housing Markets of 2022 in the United States

In June, Bankrate also released a report on which real estate markets are doing the worst during the pandemic-led housing boom. As a nationwide housing boom rages, every state saw property values increase during the 12 months that ended in September. However, some state economies are struggling with weak job growth and other challenges.

These housing markets were in the bottom five on their index:

  • 47. Connecticut. This state posted poor showings across the board.
  • 48. Washington, D.C. The district’s score was brought down by weak appreciation, high unemployment, and a hefty tax burden.
  • 49. Alaska. Tepid job growth and high unemployment weighed down the northernmost state.
  • 50. Maryland. The state posted a comparatively weak appreciation of 11 percent, along with a high level of past-due loans and a sputtering job market.
  • 51. Louisiana. It ranks worst in past-due loans, with 6.8 percent of homeowners behind on their mortgage payments. Louisiana also fares poorly on price appreciation, job growth, and tax burden.

Housing Markets That Could See a Price Decline

According to data released by the Federal Housing Finance Agency (FHFA) on Tuesday, home prices are now 34% higher than they were two years ago, and they have continued to rise from March to April. But even though the housing market is bad for buyers all over the country, home prices have gone up more in some places than in others. This has led some people to worry about a possible crash in the housing market.

At the top 3 positions, we have Boise, Colorado Springs, & Las Vegas which are expected to see some significant price declines. Prices in these markets have increased by 30% in the last year. According to Mark Zandi, chief economist at Moody's Analytics, “the most overvalued markets are in the South and Southwest,” in those areas where home prices got “juiced up by remote work” during the COVID pandemic. “Carolinas, Atlanta, down into Florida, parts of Texas, and then the Mountain West.

You could draw a line from Boise down to Phoenix and Tucson —and all the major metropolitan areas on either side of that line are meaningfully overvalued,” Zandi tells Newsweek. According to Thomas LaSalvia, the senior economist at Moody's Analytics, things are becoming worse in many Sun Belt cities where there has been any movement in the previous few years, and especially in those where there has been steady migration in the last few decades.

Many of the out-of-state people who migrated to these cities came with “large savings accounts from selling their home in a higher-priced area or large remote work incomes” to areas where the local population had a substantially lower income. With this money, they pushed local buyers out of the market in bidding wars for purchasing homes.

These are the cities with the most overvalued homes in the nation:

  1. Boise City, ID
  2. Colorado Springs, CO
  3. Las Vegas, NV
  4. Phoenix, AZ
  5. Coeur d'Alene, ID
  6. Tampa, FL
  7. Atlanta, GA
  8. Fort Collins, CO
  9. Sherman, TX
  10. Jacksonville, FL
  11. Idaho Falls, ID
  12. Lakeland, FL
  13. Greeley, CO
  14. Longview, WA
  15. Charleston, SC
  16. Albany, OR
  17. Denver, CO
  18. Clarksville, TN
  19. Greensboro, NC
  20. Charlotte, NC

Sources

  • https://www.bankrate.com/mortgages/housing-heat-index/
  • https://smartasset.com/data-studies/best-and-worst-housing-markets-for-growth-and-stability-2022
  • https://www.newsweek.com/housing-market-crash-could-hit-these-20-cities-hardest-1720201

Filed Under: Getting Started, Growth Markets, Housing Market, Selling Real Estate

Single Family Rental Homes vs Multi-Family Investing in 2022

November 23, 2022 by Marco Santarelli

Single-Family Rental Homes

A single family home is a standalone property on its own lot. Investing in a single family home is basically investing in a house or a condo to rent to a single tenant. One of the simplest definitions of single family rental property investing is getting paid for what you own, rather than just paying to own it. It has a few pros and cons attached to it but it depends on your expectations from the property.

Usually, people tend to buy a property in a low-budget or affordable locality and revamp it to attract new tenants. Investing in single family rental homes gives the investors the liberty to determine their profits in many ways. Some of the advantages of buying single family rental properties are huge tax write-offs, a passive rental income, and a long-term capital appreciation of properties.

Single-family rental homes are easy to buy and hold for new real estate investors. Investing in them can deliver immediate returns, plus the long-term appreciation of the asset. It is a great way to save for your retirement as this type of real estate investment becomes a good source of regular passive income. The discrepancy between the number of renters and landlords in the United States is increasing every day.

Investors find real estate investing viable for many reasons. Unlike stocks, real estate is a tangible asset. Investors choose real estate because they can touch and feel the asset, and also watch it appreciate over time. They see single family rental homes as a way to improve monthly cash flow and diversify their investments.

Single-Family Homes vs. Multi-Family Properties: Which Investment is Better?

Single-Family Homes vs Multi-Family Properties

Both single and multi-family rental homes are good investments. They definitely lead to a positive cash flow, but there are differences between both investments. Single-family rental homes are affordable and have higher appreciation. You can get suitable tenants and maximum exit strategies with single family rental property investment.

On the other hand, multi-family rental properties give you high rent, maximum vacancies, and rent depends on the landlord as it is not subject to economic factors. So let’s begin by talking about the advantages of investing in multifamily properties.

Single-Family vs. Multi-Family: The Scalability Factor

The first thing that investors think about when it comes to multi-unit or multi-family properties, those that are five units and above, which could be 50, 500, or more, is that you can scale faster. And there is some truth to that. And this is the big thing that Grant Cardone talks about. I know Grant he’s been on my show. I’ve been on his ask the pros show a couple of years ago.

You know, the whole thing about scaling faster is that you can complete one transaction and end up with, let’s say 20, 30, or 50 units in one purchase under one roof typically, but it could be multiple properties. But the idea is that you have fewer closing costs. Although the closing costs are significantly higher and a little more complex when you’re purchasing multi-unit properties or multi-family properties of that scale.

You’re definitely going to be paying a lot more in terms of the appraisals, the inspections, the complexities of it, etc, but it’s still one transaction. And so if you’re getting one loan for that purchase, you essentially have fewer total transactions. So there’s some simplicity in that, but there’s greater complexity in the purchase or the transaction itself, but you can scale faster.

Now, this is assuming everything else is equal, meaning that you are starting with the same investment capital that could be, you know, 200, 500,000, a million dollars as your down payment versus using that same amount of capital to purchase single-family homes or duplexes or fourplexes, but something in the residential space.

So with the same amount of investment capital, it’s fewer transactions, but in terms of the number of units, you can do it either way, but that is the general argument. And sometimes the number one advantage of going the multifamily route over single families or duplexes and fourplexes is that you can scale quickly. And so there is truth in that, just understand that it’s not what you are hearing at face value, meaning that you can scale faster period, full stop.

End of story. It’s not exactly like that. You have to understand the other complexities and dynamics that are involved with the purchase of a multi-family property. And also realize that the lending side of this is a little bit different. They’re going to take a much closer look at you, but they’re certainly going to scrutinize the property.

That's because they’re typically qualifying the property just as much, if not more than you personally. After all, they’re looking at the property as a business and they want to make sure that the revenue or the cash flow from that property is more than enough. A higher enough metric that it can service the debt, something they call DSCR or debt service coverage ratio, which is often about 1:2. So that’s the first thing you can scale quickly.

Economies of Scale With Multi-Family Properties

The second benefit of the multi-family property has to do with economics, which economists or professional investors refer to as economies of scale. So when you have more units or more apartments under one roof, you are essentially sharing in the cost of upgrades to the common areas or the mechanicals such as the boiler hot water tank or roof.

And that cost is spread across all, whatever 20 units, 30, 50 units in that building. So it might be a very expensive repair, a 20, $30,000 roof repair, but you’re dividing that 20 or $30,000 roof repair amongst, let’s say 20 units in the building. So you have the economies of scale. You have mechanicals and items that are shared as common or common areas amongst all the residents and the units in the building. So that reduces the overall cost on a per-unit basis.

That doesn’t necessarily mean it’s cheaper than the equivalent repair in a single family home. It actually could be a lot more expensive, but the thought there is that it probably will last longer as well, being in a commercial building. Although that's not always true, what you often have are one item, one repair, one location, maintenance issues, and inspections are all done at that same place.

People are not being dispatched to different locations because you have different properties in different locations around a market. Property management may be completely localized. You may have an onsite property manager. If the building is large enough, usually that’s, you know, 50 to a hundred units.

And above is when you start to have resident managers. If you have a property management company and they’re looking after, let’s say 20 units at a building versus 20 single-family homes or duplexes peppered around the city, it adds some simplicity, but I would argue that it doesn’t matter. At the end of the day, if you’re working with a property management company that’s managing multiple properties in different locations within a market, that’s what they’re doing for many clients, that’s just built into their business model.

And that’s part of what they do, where there is saving with apartment complexes. And multi-family units are often in the management fees with multi-family properties. It’s not uncommon to have management fees in the 4 or 5, 6, 7% range of that monthly gross rental income that’s collected. Whereas with single-family residences, the street rate, as I say in air quotes is 10%.

But the reality is, is that often, and especially with the property management companies that we work with, uh, in many markets and often that rate is often 8%, sometimes nine and even sometimes 7%. So I don’t know what the average is, but I would guess that the average is probably around 8% as far as the management fee. And especially if you have more than one property with a property management company. So that’s also a negotiable item.

So keep that in mind, but there is a saving because of, again, the economies of scale with multi-family properties, especially as they become much larger, meaning a hundred units and above, it’s not uncommon to have a management fee of around four or 5% on the low end 6, 7% on the higher end. And you know, that doesn’t mean a lot if you have a small number of units, but it does add up if you are talking about large-scale properties.

Higher Monthly Cash-Flows in Multi-Family vs Single-Family Homes

Another advantage of multifamily properties has to do with supposedly higher monthly cash flows. Again, this is an arguable point because it assumes that all else is equal, but it doesn’t necessarily mean that you have higher cash flow. The basis of this argument by a lot of investors is that if you have, let’s say hypothetically, a 10 unit apartment complex, and you have two vacancies, you’re essentially 20% vacant or 80% occupied. However, you want to look at it.

So if you have a vacancy, you don’t have essentially a hundred percent vacancy in that property compared to a single family home where you’re a hundred percent vacant. Well, that is true, but that’s also an unfair comparison. And I see this and I hear this all the time. What they fail to do is compare your portfolio, not just the property. Sure. If I have a single-family property, it’s one property compared to a 10 unit apartment complex, which is still one property.

If I have one vacancy in each of them, it’s the difference between a hundred percent vacant with a single-family home versus being 10% vacant on the 10 unit apartment complex. Those are true statements, but it’s really not taking the true situation into account because I may have 10 single-family homes in that market versus having one 10 unit apartment complex in that market.

And if I have one vacancy with the apartment complex and one vacancy in my portfolio of 10 single family homes, I have the same thing. I have one vacancy, one unit is empty on both ends. So I really have the same overall occupancy of 90%. So I think this is where people are not being completely truthful in the comparison between multifamily and single-family. So a vacancy is a vacancy and it doesn’t matter where it happens. You have to look at what is my total portfolio size, and then you can make a fair comparison.

Return on Investment in Single-Family Homes vs Multi-Family

Another thing to keep in mind is that the ROI, the return on investment on multi-family properties typically, and especially today, and has been this way for the last several years is actually not as attractive. In fact, it’s usually lower with multi-family properties than single-family homes. And one of the main reasons for that is that capitalization rates on multi-family properties have been compressed over the years.

They’re hard to find very few people are selling them and the people who are wanting to buy them are chasing after them with a lot of competition. And because of that, it’s driving the prices up pretty much across the board, all around the country. So multi-family properties have become more and more expensive because of the high and growing demand that a lot of apartment buyers and syndicators are chasing after. That’s also somewhat true with single-family homes, but more so with multi-family properties.

And the fact is, is there’s just far fewer of them. So as you get larger and scale larger, the number of units in the property, the fewer and fewer and fewer there are of them. So your monthly net cash flow is just one part of the equation when you’re factoring in what your total return on investment is, but keep in mind that your ROI, your cash on cash, and your rate of returns on multi-family properties are typically, and more than likely going to be lower with all else being equal, same market, same types of things.

Also, when you have larger multifamily properties, you have a common area inside and outside of the building, aside from the shared mechanics and the roof, and whatever else. And that usually means that you’re going to find more wear and tear on these common areas and these common mechanics that are in the property. So your upkeep and maintenance are probably going to be higher and that’s just an added cost. So you have to factor that into the equation as well.

Financing Single-Family Homes vs Multi-Family Properties

Now, when it comes to financing multi-family properties, lenders will take a more rigorous approval process. So they’re going to look at the property and they’re going to look at the trailing 12 and 24 months of cash flow of rental income of tax returns. They’re underwriting that property as if it was a business.

And they look at it as a business and social due, but it is sometimes, and maybe often easier to finance a loan for a $10 million apartment complex than it is to finance a single family home. And the main reason for that is really just the cash flow that comes from the property.

Again, a multifamily property is considered a business in the eyes of a lender, whereas a single-family home, even though it may be a rental property and you are truly getting a non-owner occupied loan for that property as if it was a rental property, which is, and will be the lender still looks at the larger multifamily property as a business.

And so they’re going to underwrite it from a cash flow perspective. That’s the most important thing to them. They’re going to look at you as well. They’re going to consider other things like the market value of that property, but they’re going to look at its financial performance because they care about the cash flow and its ability to service the debt, which is what they’re extending to you to make that purchase. So they think of it as a safer bet because of the cash flow. That’s really the bottom line for them figuratively.

And literally, the other thing too, is that multi-family properties, the value is based on the income that it generates, what is essentially known as the NOI or net operating income, which is all income minus all expenses, not including the debt service. And so that’s the number that they hyper-focus on to make sure that it meets their underwriting criteria to be able to service that loan ongoing basis, even with some vacancy.

So property values will change with multi-family properties based on the net operating income. Whereas single-family homes will be based on whatever the real market value is of that property based on the comparables in the area that can be determined from an appraisal. So that’s the thing about financing.

It can be easier, but keep in mind, these are larger loans with larger down payments and not necessarily as attractive terms as single-family, residential properties last but not least. There’s the concept of house hacking. If you are purchasing a multifamily property, whether it’s 10, 20 units, 30 units, 50 units, a hundred units, you can do this also with a duplex or four-plex by the way. But the concept of house hacking is that you live in one of the units and you rent out all the other units. And so this reduces minimizes or eliminates your housing costs for the month.

So your rent or mortgage payment is essentially covered by the operations of the business or that property. So this is a, you know, a nice concept and a great way to get started for many people who are just getting started and they have a minimal down payment, or they want to actually live and manage the property and learn from the experience.

Well, they’re purchasing, they’re usually first property, but sometimes it could be even their second or third as they start to stair-step and grow their portfolio and move from one to another after two years or so because the tax benefits are there on the capital gains by living in a property for two years or more. So that can be a great benefit for those people who are looking to get started with their first property. And it’s easy to do with a two to four-unit property.

You can still call that a multi-family property, less likely to be able to do that with a large multi-family property, especially if you’re just getting started because you just don’t have the experience. And lenders will look at that. Okay. Now let’s take a look at the advantages of single-family rentals. So first and foremost, and this is going to be pretty obvious is that they are less expensive.

A single-family residential property can range from, let’s say, send the 80,000 on the low end to about 150 to 200,000 on the high end. And I’m just looking at the 20 or so markets that we’re in right now. So if you’re purchasing a single-family, residential property, there’s a wide range of prices because there’s a wide range of markets and neighborhoods within those markets. So the thing with multi-family properties is that a lot of things are going to cost more compared to a single-family home.

The other thing too is the down payments are going to be much smaller with single-family homes. So I always like to use a hundred thousand dollars property as an example, just because the numbers are easy to calculate, but with a conventional loan, you need 20% down for your down payment and that’s $20,000.

So that’s simple math, a hundred thousand dollars property, but when you compare that to a multiunit property or multi-family property, let’s say there are 20 units, and those are a hundred thousand dollars each. Well, now you got a $2 million property. However, your down payment is typically going to be 25 to 30% down.

That’s just what commercial lenders are going to require as far as that financing is concerned. So it’s a much larger amount, both in terms of price and percentages. It can add up pretty quickly because you’re looking at a minimum of 5% and probably 10% more in terms of percentages as far as the down payment.

So you got to keep that in mind, you’re looking at potentially $500,000 as a down payment on that $2 million property. So it’s not as easy to get started unless you have deep pockets. A lot of investible capital. Another thing to keep in mind is what the lenders require as a cash reserve to cover expenses or payments if needed, then they’d call these reserves.

And with a single-family home, it could be as little as two or three months’ worth of mortgage payments. Whereas with commercial property and a commercial loan, you will probably need six to as many as 12 months of reserves to qualify for that financing. So it’s considerably more in terms of what you need to have in the bank to show the lender after you’ve closed, that you’re able to be liquid enough to weather through any kind of storm that comes up.

Another thing with commercial real estate loans is that they typically have higher interest rates. And it’s often about two and a half percent higher plus or minus. It could be two to 3%, but about two and a half percent higher. On average, the terms are just less attractive. And there are also far fewer banks that you can choose from in order to get that type of loan.

And the main reason for that is because there’s a much smaller secondary market out there for them to take that mortgage and sell it off with conventional financing. Often these loans are sold right away like right after you closed, they’re already put into a package and sold onto the secondary market. So the lender can essentially reload their warehouse line or their capital to make the next mortgage loan. So the financing is a little more difficult and it’s not as widely available or abundant it’s out.

There there are many lenders out there, but certainly not as many as in the residential space last but not least in the process of getting financing, you are going to need to provide the last two years of financials and the rent rules for the property. As part of the qualification. You don’t need to do this with single family homes, because it really just comes down to your ability to qualify for that mortgage.

And I should mention that also with multifamily purchases, the lender is going to want to see that you have at least some prior property management experience, whereas again, with single family homes, you don’t need that. So the down payments are lower. The rates are lower, the financing terms are more attractive because you can get 30 year fixed rate loans. You can just lock it right in. You don’t need to show property management experience.

And often you’re not the one managing your own property. Anyway, you don’t need to show financials on the property like two years of tax returns or two years of rent rolls. So there are many advantages on the financing side.

Single-Family Homes Have Higher Liquidity

So when we say, you know, it’s less expensive to get started, it’s not just about the purchase price. It’s also about the down payment and the terms and the financing overall, by the way, appraisals are also much more expensive on commercial property. But again, you know, it goes back to the concept of economies of scale.

It’s much more expensive, but you’re also rolling out that appraisal across whatever 20 units, 30 units, or more the second advantage of single-family homes. And this is something I actually debated a couple of times with grant Cardone is the liquidity. There’s a greater ability to sell, resell, even purchase single-family homes.

It’s just a much, much larger, more liquid market real estate in general, as an asset class is not very liquid. It just, isn’t, it’s a little bit slow to buy and it’s potentially much slower to sell a property, but the smaller, the number of units right down to the single-family home, which is one unit that is the quickest property to sell in the residential space or the real estate space.

So it’s just an easier product to sell because they are less expensive and there’s a lower barrier to entry and you have a much wider pool of potential buyers. So it’s not just real estate investors that are buying and selling homes or real estate in general. But when it comes to single family homes, you have a large pool of wanting to be home buyers, people who want to buy and live in their own home, not necessarily rent the property.

The Higher Demand For Single-Family Homes

So when you think about the buying pool, it’s the largest with single-family homes, and then it gets smaller and smaller as you go up to duplexes, triplexes, fourplexes, and on up. So obviously you can’t compare a 500 unit apartment complex and the size of the buying pool for that compared to a single family home, it’s a vast difference.

And this was my whole argument with rent. And he just, as of the belief that he can sell a 500 unit apartment building much faster than I can sell a single family home. And that debate didn’t go too far. I think I clearly made my point and I’m sure he knows I’m right, but whatever growing demand is also another advantage of single-family homes. And I’ve talked about this on and off on the podcast here for quite a long time, the fastest-growing segment of the single family space happens to be single family rentals.

It’s just incredibly high in demand. They are selling very quickly. And if you’re working with one of our investment counselors here, you will know that we do have inventory. There is a pipeline, but they do come and go and they go under contract fairly quickly, but that’s a common problem around the country. It’s not just unique to us. It’s just the way it is.

So single family rentals have been outpacing, even single family, home sales, especially multi-family housing. So that’s one thing is just demand is strong. And it’s growing. According to the US Census, they estimated in a recent report that the number of single rentals in the US grew by 31% in the 10 years following the housing crisis of 2007. So that period of 2007 to 2016, had an increase in single family rentals by 31%, you compare that to the growth in the multi-family space, which is five units.

And above it grew by a healthy 14%, but you can see that single family rental demand grew by more than twice, as much as multifamily. So there’s strong demand and growing demand for single family homes, which is good for you from an appreciation perspective and a liquidity perspective, as well as the future demand for those properties in terms of rentals, sales, and price growth.

Also adding to this upside is that single family rentals traditionally have less tenant turnover compared to multi-family properties. And I’ll talk about this a little bit further here in a moment, but I just want to quickly say that another study that came out from the Urban Institute, put out a forecast showing that demand is very strong and continues to grow, especially from the millennial demographic, because they’re now entering that age when they want to start, not only buying their first home but having kids and the demand on new household formation is very strong and increasing.

So the desire for those single family homes is just increasing year-over-year. So that’s creating economic pressure and it’s just driving more demand for single family homes and rental homes. And that doesn’t mean demand is not there for multi-family properties. It’s just incredibly strong for the single-family from a diversification perspective.

Building a Diversified Portfolio With Single-Family Homes

Rental markets, as you know, are local dynamics. The economics are predominantly local. So what happens in one market is different than what happens in another market. So it’s easy or maybe easier to build a real estate portfolio. That’s geographically diversified because if you follow kind of my rule of thumb of three to five properties in three to five markets, you could quickly or relatively quickly build a portfolio of three, five houses, or even duplexes or fourplexes, but three to five single family homes in one particular market.

That makes sense for you from an investment perspective and then move to another market, geographically different, usually in another state where you continue to build your portfolio, adding another three to five properties there, because you’re dealing with single units, it’s easy to diversify geographically.

Whereas if you take that same investment capital that you use to build up that portfolio diversified across three to five markets and put it into one, let’s say a 20 or 30 unit apartment building, you’re stuck to one market you’re rooted there with all your units. And the only way to diversify geographically is to have additional investment capital where you can now start to acquire other properties, whether single families or multi-families in other markets in other States.

So it’s just easier to grow and diversify your portfolio in multiple markets using single family homes. And I guess anytime I say, single family homes here, I’m also adding in duplexes and fourplexes. I think you got that by now.

Single-Family Homes Have Low Vacancy & Tenant Turnover

So the final point I want to make is the benefit of single family homes is that both anecdotally and statistically, they have lower tenant turnover. And I saved this till last because to me, this is probably one of the biggest advantages. And one of my favorite things about single family rentals is the lower tenant turnover. For me, that is critically important because I am all about having long-term tenants. I want to have tenants that are on at least a one-year lease, ideally a two-year lease.

I don’t need anything longer than that, but I want them to stay and be happy where they live and, you know, enjoy the property, enjoy the neighborhood and keep renewing their lease for as many years as possible. Because the bottom line again, figuratively and quite literally is that tenant turnover is expensive.

It’s costly. It takes money and time. You know, there’s a cost to a turnover and there’s downtime. So here’s lost rental income. So I don’t want the lost rental income. I don’t want to pay my property manager all too often for that turnover because they’re going to make a fee on that turnover. And they also have to take the time where it’s vacant to clean repair, any damages, take care of wear and tear market, and show the listing, you know, screen applicants.

So, you know, you may only have a downtime of three, four days in a really hot market, but just assume that it’s probably going to take two weeks or maybe three. And so you’re going to have a month of vacancy plus the first month, or maybe the first half months of rent going to the property manager as the cost of that turnover.

It’s not the cost of the turnover, but it’s the lease-up fee. So, but that’s not going in your pocket. That’s going to your property manager for the service of turning over that property and releasing it. So turnovers are costly. It’s actually probably the biggest cost in owning property and your budget for this, of course.

So it’s not like it’s a surprise expense. Your budget for maintenance and repairs and your budget in your performance for vacancy and turnover. So you’ve already factored it in, it’s baked into the cake, you’ve accounted for it, but the less turnover you have, and that’s my point, the less turnover you have, the more consistent and predictable your cash flow is.

And that’s your short-term gain. Your long-term gain is equity, growth, and appreciation, but the short-term gains are monthly and annual cash flows. So I want to keep that going as much as possible, as long as possible. So this is the big thing for me is the lower turnover, the tenant turnover, one person or company that I like to follow is John Burns real estate consulting.

So I know John Burns and some of his data shows that 52% of single-family residential renters are families. You compare that to multifamily residential properties and that’s 30%. So that 30% are people who are more likely to be under the age of 35. And if you look at that demographic closely, you will find that they are for many reasons more transient.

They don’t tend to stay as long. For many reasons, it could be jobs, friends, getting a girlfriend, getting engaged, getting married, moving up, moving down when you’re dealing with apartment and apartment residents or dwellers that profile. And that demographic is just more transient.

It’s just normal. There’s nothing wrong with it. It just is what it is. The average single-family, residential tenant stays for three years. That’s average. I’ve had tenants stay for five-plus years. So it’s not uncommon to have a very long-term tenant, but the average SFR or single-family residential tenant stays for three years. And that’s roughly double the average apartment tenure, which is roughly about one to one and a half years.

And also another interesting little fact is that single-family, residential tenants often will stay five or six years as long as you’re not above-market rent. If you’re at, or just below fair market rent, they have a good deal in other words, and they know they have a good deal and you’ve got a house in a great neighborhood and it’s safe, clean, functional.

It is not uncommon to have people stay five, six years, or more. It’s not unheard of in the single-family, residential space and over time, that just means a considerable cost saving. So that’s just money in your pocket. I think it’s well worth it. Single-family homes are easy to acquire, easy to understand, easy to repair, easy to address, easy to fix, easy to deal with, easy to show.

There are just a lot of benefits. In my opinion, if I’m sounding pretty excited about this last bullet point of having lower tenant turnover, it’s because I really am. I think this is a big deal and I don’t think enough people talk about, you know, how important it is and how beneficial it is.

Advantages of Buying Single-Family Rental Properties

Buying single family rental properties has a lot of advantages such as forced savings for retirement, tax benefits, increase in wealth, stable income, and long-term capital gains. Single-family homes have the widest market appeal. In a softening marketplace, real estate that houses jobs (retail, office, etc.) will generally show rental weakness before the real estate that houses people (single-family homes). Changes in job indicators give investors in single-family homes opportunities to re-position faster than investors in commercial property can.

Single-family homes have lower rates of vacancy (downtime) than commercial properties because there are more potential renters for a single family home than there are for a gas station or a big box store. Single family homes have the most attractive financing terms available.  Single family homes will never become technologically obsolete. What technology could replace the need and desire for a place with four walls and a roof where humans sleep at night?

Contrast this with an investor who buys a retail center and then internet shopping and a slow economy makes this retail center obsolete.  Corner video stores are being replaced by Netflix and streaming movie downloads. Movie theaters are being replaced by home entertainment systems. Soon you may see gas stations becoming technologically obsolete because of major changes in the ways we travel and fuel our vehicles.

At the very least, gas stations of the future will require expensive retooling that will erode years of profits for the owner. Although real estate is relatively illiquid, single-family homes typically sell faster and have more liberal access to financing than any other type of real estate.  Single family homes can be purchased with cheap, fixed-rate financing, with a thirty-year amortization and a 20-25% down payment.

Apartments will usually be financed at a higher interest rate and require 30% down, plus you’ll pay a large premium to get an interest rate that is fixed longer than 5 years, and you’ll have an amortization period of 20 – 25 years.  If a house and an apartment unit generate an equivalent net operating income, the house will provide superior cash on cash return due to the better financing available for single family homes.

There are two general approaches to single family property investment – Fix and flip investing and buy and hold strategy. Each approach has its advantages and disadvantages, depending on whether the investor is aiming for short-term or long-term capital gains.

Buy And Hold Strategy

Buy and hold real estate investing is the process of acquiring real estate, particularly rental property, to own and profit from over a long period of time. Buy and hold real estate is a great way for investors to diversify their investment portfolios and achieve financial freedom.

Fixing and Flipping

Fix and flip involves buying real estate, repairing or renovating it, and then reselling it for a profit. On the other hand, the buy and hold strategy is often referred to as buying and holding rental property. The investor buys and holds the property with the expectation that it will generate dividends through rental income. Fix and flip real estate strategies often require a lot of work because repairing or renovating a house usually takes months.

It is also considered a bit riskier, especially for new investors venturing into real estate. Nevertheless, fix and flip investments are lucrative because the investor can earn huge profits after reselling the property. You may not earn so much as a flip, but investing in a rental property is a permanent income.  You don’t have to deal with any problems or tenants if you don’t want to. It's easy to hire a property management company and you can work the numbers in before you purchase the property.

Single Family Homes Can Be Purchased in ‘Bite Size’ Portions

Using the ‘bite size’ investment strategy with single family homes gives you flexibility in your tax and estate planning as well as making it easier to harvest equity.  If you want to cash out some of the equity in your real estate portfolio, you can sell or refinance one or two single family homes rather than liquidate an entire apartment building.

The same ‘bite size’ concept applies to income taxes. For example, offsetting a stock loss with a real estate gain could result in ‘tax-free’ real estate profits.  Please note, income taxes are a very specialized subject.  I am not a tax professional.  Always consult your tax advisor.

The income tax benefit from depreciation strongly favors single family homes over commercial property. Single family homes can be depreciated over 27.5 years while commercial property is depreciated over 39 years. The shorter depreciation schedule of single family homes can be a great boost to an investor’s initial cash flow.

Avoid all vacant land investments!  These take specialized skills to manage, are difficult and expensive to finance, and are very hard to sell.  I know many people who have made huge profits buying and selling vacant land, but vacant land is not hassle-free and it definitely does not cash flow!  Making money investing in vacant land requires a lot of skill or a lot of luck.

Vacant land takes money out of your pocket for taxes, maintenance, and liability insurance while it produces no revenue.  If you are a new or part-time investor, just avoid vacant land. Many people call vacant land “the alligator” of real estate investing because it slowly eats away all of your savings.

A word on buying condominiums: Don’t! While a condo may give you cash flow, it is never a hassle-free investment.  I’ve spent years of my life developing, owning, and managing condominiums. I HATE THEM!  The only winner in the world of condominiums is the developer who originally sells the condo to the general public.

Condos come with the huge, wasteful expense of a Home Owners’ Association (HOA).  These collective management groups have different names depending on the location of the property and are sometimes called Property Owners’ Association (POA) or the ominous-sounding Horizontal Property Regime.  Cooperatives (co-ops) are legally very different beasts than condominiums, but they are all hideous investments.

  • Overpaid vendors
  • Restrictions on property usage
  • HOAs are run by an untrained volunteer board
  • HOA dues are variable
  • Your neighbor's failure to pay means you pay
  • Lower rent and higher operating costs
  • Higher costs of financing
  • The inability to get condo financing can decimate condo values
  • Non-volunteerism/Double management expense

These negative factors apply to all types of condos: retail condos, office condos, storage condos, residential condos, but none of these factors apply to my favorite cash flow investment… single-family rental homes!

If you have the capacity to buy $1,000,000 of real estate you are generally better off buying ten single-family houses for $100,000 each than buying a single apartment building with sixteen units for $62,500 each.

8 Single-Family Homes

  • Purchase Price: $100,000 x 10 houses = $1,000,000
  • Net Operating Income at 8% CAP = $80,000
  • 25% Down payment = $250,000
  • Cost of 75% Financing (@ 5% 30-year fixed) = $48,312
  • Positive Cash Flow = $31,688
  • Cash on Cash Return = 12.7%

16 Unit Apartment Building

  • Purchase Price: $62,500 x 16 units = $1,000,000
  • Net Operating Income at 7% CAP = $70,000
  • 30% Down payment = $300,000
  • Cost of 70% Financing (@ 7% int. only) = $49,000
  • (25 year fully amortized payment $59,369)
  • Positive Cash Flow = $21,000
  • Cash on Cash Return = 7%

Forced Savings for Retirement

One of the top advantages of buying a single family rental property is that it is a great way to save for retirement. A single family rental property is a good source of regular passive income. The rent is often used to pay off the mortgage for the property. Once the mortgage has been fully paid, the landlord has the choice of whether to hold the rental property for a monthly check or sell it for a lump sum profit.

Tax Benefits

Rental property owners also have significant tax benefits, which is one of the advantages of buying a single family rental property. The IRS allows tax deductions for property tax, repairs, and ordinary and necessary expenses for managing the rental property. Costs of supplies and materials, as well as maintenance and repairs needed to keep the property in good condition, are also deductible. The biggest benefit is writing off depreciation, which can save you thousands each year in taxes.

Long-Term Capital Gains

Single-family rental property investors purchase properties to rent them out, with the expectation that the property value will increase in the long term. Landlords can sell their single family rental properties at a profit when the market conditions are right. This is especially profitable for real estate investors who leveraged their rental property investments.

Investment With Leverage

You can buy a single family rental property with a 20-25% down payment and a mortgage loan for the balance. In other words, you get a $100,000 investment for a $20,000 cash payment which means you are using a relatively small percentage of your funds to make the purchase. For the leverage to work in your favor, the real estate prices in that location should not decline. In real estate markets where prices fall significantly, homeowners can end up owing more money on the house than the house is actually worth. With good credit, it is not difficult to get financing for a rental property. ‘

A Tangible Investment

A single family rental property is a tangible asset unlike financial investments such as stocks, bonds, mutual funds, and other financial instruments. You can call it your own and it lets you have better control over it. You can sell it whenever you want to.

Stable Income

Unlike the stock market, the real estate market is not prone to sudden and extreme fluctuations in price. Certain factors such as population growth and growing demand for housing and rentals ensure that the investment you make on a single family rental property will be a profitable one.

Increase In Wealth

Real Estate is the best avenue for long-term investment for the accumulation of wealth with minimum risks involved. No other asset increases wealth the way real estate does. Real estate is a powerful wealth-building tool that has made millions of individuals millionaires over a period of time. Appreciation of a property is one of the biggest ways to increase your wealth as a real estate investor. You can do it by choosing the right properties in the right market and managing them the right way.

With the current real estate market conditions in the US, now is a great time to invest in single family rental homes. Compared to the low yields in stocks and bonds, rental properties are a good source of regular monthly income. For investors wanting to diversify their portfolios, tapping into this market with the help of a good realtor or turnkey provider can provide higher ROls.

There are factors to consider when choosing a real estate market for single family rental property investing, such as population and employment growth, and an increase in house values. When buying single family rental properties located in a different city or state, investors also research purchase prices, taxes, and housing regulations. Other investors also look at the percentage of the population that is renting. For instance, D.C., New York, and California have the most renters, in terms of percentage of the population.

So let me just wrap this up by quoting something from a recent Zillow article. And I’ll just quote right from the article here. It says among young adults, renters of single-family homes have always tended to move less often than apartment renters and single-family home rentals are one of the fastest-growing market segments. Uh, unquote. So there you have it.

I hope this has been helpful for all of you again, you know, I just need to compare single-family to multifamily rental properties as fairly as possible. But like I said, I have a preference and I have a little bit of a bias, but I’m not saying that one is bad and I’m not saying one is better than the other.

It really comes down to your personal criteria and your investing goals. But you also have to consider what is your investment budget? What is your investible capital? What is your access to financing and what do you qualify for? And last but not least, you need to ask yourself what is my risk profile.

And especially if you’re thinking about single-family investing, you know, let us help you put that strategy together because it’s probably a very good fit for you. And my team of investment counselors is certainly here to help you. Norada Real Estate Investments helps take the guesswork out of real estate investing. By researching top real estate growth markets and structuring complete turnkey real estate investments, they help you succeed by minimizing risk and maximizing profitability.

Click on the link for the complete list of investment properties for sale in the various real estate markets of the U.S.

Filed Under: General Real Estate, Getting Started, Real Estate Investing, Real Estate Investments

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