First of all, I've been in California since January 1973 and even though I purchased several homes between 1974 and 1978 the numbers for single family never made sense. In about 1974 everyone was purchasing homes with negative cashflow, but homes were increasing in value by $10,000 per month and people were doing turn-around escrows where homes were in escrow and the people who had the homes in escrow had already sold the homes and the new buyers were waiting for the first buyer's escrow to close. I purchased the home I currently own in 1974 for $49,000. In about e to 5 years (can't remember) the home was worth about $180,000. Then by the end of 1990 the home I put the home on the market for $625,000 and the first person who looked at the home wanted to buy it, but I got cold feet and backed out. Today, the home is on a major thoroughfare, in a crappy neighborhood and the home is worth an easy $1 million.
Here is the major problem with investors. At any time during the past 100 years of investing in California the smartest and most-profitable investments was always in multi-unit properties Had I known about the math I know today about investing in multi-units I would be a billionaire and would literally own every apartment building in a 50 mile radius.
Here is the reason why. While I was screwing around trying to figure out how to make a profit with single family homes while they were increasing in value disproportionately, always with a negative cashflow and while they were increasing in leaps and bounds by $10,000, $20,000 and more per month nobody was looking at apartment buildings. In 1980, when the $49,000 home I purchased in 1974 was worth about $180,000 apartment units were for sale for as low as $7,000 per unit. There was a 7-unit apartment building for sale for $49,000 when my single family home was worth $180,000 and I turned the building down. Today, those units are selling for $300,000+ per door.
If you want to be rich stop looking at single family homes and learn to do the math for multi-unit properties where you will learn that it is many times more simple to find multi-unit properties were you have a positive cashflow. It is many times easier to absolutely be positive that you can increase the re-sale value of the property when you increase rents and you cannot do that with single family homes. When you learn to do the math you will learn that is is very simple to increase your profits almost exponentially. For example, suppose, you own a 20-unit property. Then, when you increase the rents for 20 units this is how much YOU EARN THE EXACT SAME DAY YOU INCREASE THE RENTS - NOT SEVERAL YEARS DOWN THE ROAD.
20 unit rent increase of $60 = $1200 extra in your pocket every month.
$1200 extra per month X 12 months = $14,400 extra in your pocket every year.
$14,400 is $14,400 in ANNNUAL GROSS INCOME
The Gross Multiplier for the average multi-unit (4+ units) property is about 18 in todays hot market even for undesirable properties.
How much money do you make the same day you raise the rents?
Annual Gross Income Increase $14,400 X Gross Multiplies = $14,400 x 18 = $259,200
That means, if your purchase your 20-unit property (or 4+ units) for $1 million dollars last month, then you should put the property back on the market for $1, 259,200, but you don't want to do that because what if you can raise the rents $60 to $200 every year. You will be filthy rich and you can retire from that one property and live on Easy Street.
BUT YOU MAKE MORE THAN $259,200 when you raise the rents only $60 because you still need to add the your annual rent increase to the $259,200 so when you increase the rents by only $60 you really earn $259,200 in appreciation plus the $14,400 that you actually collect from the rent increase = $259,200 + $14,400 = $273,600 you earn by the end of the 12th month after you increased the rent.
So, never look as properties that are less than 4 units and you can always find units that are cheaper than single family homes and you will always find properties with a positive cashflow.
There is a calculator on BP that does calculations very close to the image below and the numbers on my image should blow your mind and send you into a whole new world. Personally, I think any broker who recommends single family properties to investors who want to make some major cash is a serious idiot and I've had serious arguments with some brokers where I wanted to punch some sense into them.
Don't invest without getting the book 50 Real Estate Investing Calculations. NO! I did not write the book and nobody is paying me a penny. Every real estate investor should know every formula in this book, but it does not have what I just showed you, above. I love to put my books on Kindle so I have them on my cell phone, tablet, or can access them on a computer anywhere in the world.
