Rentals- Single or Multi-Family?

Many real estate investors think it will be easier to have multiple units all in one place for economies of scale and ease of maintenance and all that.  However, there are many other factors to be considered on real estate investments. The drawbacks should make you think twice when comparing multi-family properties to single-family homes.

Let us start with resale issues:  The pool of potential buyers greatly affects the liquidity and potential value of your investment.  When selling, multi-family properties appeal to mostly investors, a much smaller group than homebuyers. This factor certanly will affect your re-sale. Plus, investors looking only to make money will generally pay less than a homebuyer who just wants a place to live. 

Another issue affecting resale is the availablilty of financing.  The more plentiful homebuyers have access to hundreds of financing programs with as little as zero down and at lower rates than investors.  The smaller pool of investors have many fewer financing options and need a much larger down payment, especially on 3 or more units.

Another point on liquidity:  You cannot sell just one unit of a four-plex, but you can sell one of four homes if the need arises.

Diversification:  Which is safer? A four-plex in one location or homes in multiple locations.

Valuation:  Single-family homes are appraised based on comparable sales at their highest and best use, which is as a home.  Multi-family properties are valued based on income and what investors are willing to pay for that income, which can be substantially less in a slow market.  Raising the rent may be the only way to increase value on multi-family propeties.

Vacancy costs:   I have no specifics to back it up, but from all the reports I get, single-family homes have the lowest vacancy rates, with generally more stable renters. 

Maintenance costs:  Renters of single-family homes have more of a presumption of ownership and generally take better care of the property than apartment dwellers, in my experience.  Apartment renters don’t own lawn mowers either. 

Multi-family properties can be a great investment, but these are not minor drawbacks.

Dan Rowe ABR CRS GRI
Broker of Dan Rowe Realty in Boise Idaho 

(208)866-3481  

danrowe@cableone.net

Ask me for the best available investments in the Boise Idaho area.

Qualifying For A Home Loan- Know The Math

If buying a home is in your future, before you go looking at any homes for sale, it is imperative that you get pre-qualified for financing.  Not only because it puts you in the strongest possible bargaining position, but many sellers will not consider your offer without a letter from your lender.

The debt-to-income ratio is all important in determining how much you can borrow. In general, your maximum house payment, including principle, interest, taxes & insurance, can be no more than 30% of your gross monthly income before taxes. For example, if you make $3,000 per month, your maximum payment would be $900 PITI. You may need a professional to help you back out taxes and insurance and calculate the maximum loan amount based on current interest rates and down payment, but as a general rule of thumb you can buy a home equivalent to 3 times your annual income. With current low rates- maybe a little more.

Your debt ratio is also crucial. Debt is defined as consumer debt that lasts longer than a few months: installment purchases, car payments, student loans, child support, minimum payments on credit cards if you carry a balance. I use 41% as a rule of thumb, but it varies with the lender and type of loan. This is how it works. Your total house payment plus your debt can be no higher than 41% of your gross monthly income. For example: On $3,000 monthly income the maximum debt would be $1230. Back out the $900 and any debt over $330 will reduced your maximum payment. If you had a $500 car payment, your maximum payment could be only $730.

Again, these are general rules of thumb and you should consult with both a lender and a Realtor concerning your unique situation.

Dan Rowe ABR CRS GRI

Broker of Dan Rowe Realty in Boise Idaho

(208) 866-3481

www.repomandan.com

False Advertising on the Internet

I got a call today from a prospective home buyer, who was looking at a “pre-foreclosure” on the internet.   Unfortunately, this buyer actually paid for this list not knowing several important facts:

This information is public record and free if you know where to look.  These are simply homes that have had a default notice filed on them because the owner is behind on payments.  Lenders must publish a default notice in the local paper called a Notice of Trustee Sale, giving the owner 120 days to cure the default before the foreclosure sale. You can get this same list by looking in the newspaper every day or at archives.

These homes may never be for sale.  The owner has not given permission for the home to be advertised for sale as a pre-foreclosure.   The owner has many options to avoid the foreclosure, including catching up the payments, working out a deal with the lender, or selling subject to short sale.

If you want to buy it now, you can join the ambulance chasers and scam artists looking to profit from the desperate owner’s situation by contacting the owner directly.  Many of these owners are deluged with unsolicited offers to “help” them avoid foreclosure. 

If the home does make it to the default sale, you must pay cash with no opportunity to inspect and limited guarantees of title.  Talk about risky!

Many of these websites publish a “price”, which may be the amount delinquent or the loan balance, but there may be other loans outstanding.  This “price” is absolutley misleading because it has nothing to do with market value or what you could buy it for.  This buyer who contacted me said the price of the home was advertised as $4,000.  In reality, the lowest priced home actually for sale was $40,000.

Many buyers fall for this idea that homes can be bought for pennies on the dollar.  If you believe that, I’ve got a bridge I could sell you.  I have 19 years experience helping buyers purchase foreclosed homes in the Boise area.  If these deals were real, I’d be all over it.  Or buying them myself.

Dan Rowe ABR CRS GRI, Broker
danrowe@cableone.net
(208) 866-3481
www.repomandan.com

Ask me for the REAL opportunities!