Why invest in SFH and not apartments?

Question

Hi!

I'm John from Norway and I'm not very familiar with how things work in the US when it comes to buying a rental property. I'm educating myself because I'm interested in investing in the US.

In Norway, without going into the details, the best choice is to buy an apartment as a rental property. Owning a single family home as a rental property is mostly a bad idea because you will probably not be ble to get a positive cash flow.

When I read forums, articles and sales ads for rental properties, there are always talk about single family homes. Noone ever speaks about investing in an apartment as a rental property.

So I wonder if it's because I haven't been looking close enough, or are there some good reasons that I should know about?

Thank you for answering :)

Best regards

The uneducated Norwegian

Eric James · Answer

As I use the BRRR strategy, an important factor for me is the ability to refinance quickly. I can refinance SFH immediately, whereas it seems refinancing multifamily would require several years of seasoning before I could refi. If I could afford to buy 100+ multifamily that might be ok, but for smaller multi (e.g. 20-30 units) that's a long time to have my capital tied up.

Or are you talking about buying individual condos?

John P. · Answer

Hi @Morgan Nilsen!

Thank you for answering.

I'll PM you (in norwegian)!

Morgan Nilsen · Answer

Hey @John P.!

Im a norwegian who invest in USA, and can shed some light on the situation for you.

The primary reason you dont want to invest in apartments is because of the Home owner associations (HOA). They can regulate the activity for the building such as letting you rent out or not, increase the communal fees etc. We have the same problem in Norway except most people have no idea about it. Ive had two apartments in Tonsberg, where im from and one was great, the other was a nightmare. In single family housing, for the most part (unless the unit is in an HOA area), you are in charge of everything.

I think you should only invest in apartments, if you own the whole building or can take charge of the HOA.

Ive been investing in real estate full time for 5 years or so now, two of them in Indianapolis. happy to share more if you want. Reach out to me any time!

John P. · Answer

@Thomas S.

Thank you for a thorough answer:)

John P. · Answer

@Eric James Thanks for answering.

I posted this post at the same time I posted another post with the question "difference between condos and appartments" :) Now I know the difference.

So yes, I'm talking about buying individual condos:)

Thomas S. · Answer

"Owning a single family home as a rental property is mostly a bad idea because you will probably not be ble to get a positive cash flow."

Generally speaking this is a accurate statement. In the US however the economy is such that there are vast areas of depressed economy where a home can be purchased for 10K and rented for $500/month. The profit margins are still thin however the financial ability to get into the market is the driving factor. These are C/D class communities which can turn a slight profit unfortunately long term hold, due to the high expenses of SFHs, will usually eat up that profit 10 -15 years down the road. Alternately with the advent of high appreciation many SFH investors are primarily relying on that appreciation and refinancing that appreciation to further invest. Wealth is a end game as opposed to investing for income. Income is of lesser importance as a long term game plan.

So two basic scenarios...buy cheap, park cash, minimum profits, cash out before expenses eat up profits.....or invest for appreciation and ride out the zero or negative income, cash out.

Smart investors would be starting by parking their savings in cheap SFH homes, supported by some cash flow, to get into the market then cash out when they have enough equity to invest in apartments. This ideally should be a SFH investors long term plan to establish a lucrative and stable retirement plan.  Save a grow equity for 10 years then step up.

Christi Hawkins · Answer

@John  welcome to Buckeye Nation!!!

Why invest in SFH and not apartments?

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