Single-family Homes Are NOT a Good Long-Term Investment ?

Question

I just came across a story on Bloomberg about Home Partners of America Inc. (formerly Hyperiod Homes Inc.) -- they buy single-family homes and rent them out, but give tenants the option to eventually buy the homes.  In the story, the founder of the firm, Lew Ranieri says:

Single-family homes aren’t a good long-term investment for landlords because upkeep expenses and renovations for new tenants cut into profits, Ranieri said last year.

"Because a house was never built to be rented, the wear and tear on the house makes it prohibitive to keep renting over a period of time because the cost of the rehab becomes overwhelming,” the mortgage-bond pioneer said in an October 2013 interview. “There’s no historic evidence of long-term single-family rental.”

Long-time single-family home landlords, what do you say to that?  Please give us some context like how long you've been a landlord and any other details you're comfortable sharing (geographic area, number of properties, price point, etc.).  What has your experience been?

Here's a link to the full story:

http://www.bloomberg.com/news/2014-11-06/blackrock-kkr-take-majority-stake-in-ranieri-rental-firm.html

Jeff S. · Answer

I think it depends on the desirability of the area and the quality of tenants. One example is a duplex I bought in 1991 for 52k 5k down and it is worth 250-275k and brings in 1745 per mo. One tenant is original and the last time a vacancy came up there were over a 100 hits in craigslist. Got an outstanding tenant. It was built in 1910.

Paul C. · Answer

Bill Gulley

How do you decide when it's time to sell a property?  Can you give us an idea of your entry and exit criteria for single family homes?  What would be an example of a house you decide to sell and what you buy instead?Thanks

Jay Hinrichs · Answer

@Paul C.

I think this is a regional issue as well as a demographic of the tenant base issue.

@Jeff  S.

makes a super point of buying in an area that is utterly stable great tenant base 1% or less vacancy factor.. You can't recreate that type of rental in many parts of the so called cash flow markets.. Jeff did this hit the 2% rule when you purchased it ?  Of course we probably did not think about the 2% rule way back in 91.. back then if you could just break even or be a little negative it was great.

Its only been the last 15 years or so that all these SFR's have been turned into rentals.. These homes were never built as rentals and they have converted as homeownership in these areas if huge rental populations IE the mid west deep south is not what happens on the West coast for sure and probably a lot of the upper East coast.

Out here renters rent apartments 95% of the time only 5% of SFR s are rentals.. Most folks in the rental game here go for Multi they cash flow much better.

There was another thread on BP were the OP asked for those that live out of state and have owned SFR rentals for 10 years or longer how has it gone... It was crickets the only one's that answered were professional landlords that lived in the community and were in the Landlording business Very few out of state investors make it to 10 years.. Were do you think all these vacant homes in the mid west come from.. Certainly they do not come from 100% of home owners losing them  50% or more come from Landlords that got sick of it and walked.  that's just a fact.. I know I have walked on some and let them go for tax's its just brutal on the low end.. Those were in Detroit.. and I did not know what I did not know at the time.

So on a Macro level I agree with that article if your talking about certain regions of the country. But certainly not the West coast by and large

Bill Gulley · Answer

Sorry, not in a forum post, look at the aspects I mentioned and each requiring analysis, there is no rule of thumb, golden rule, begin by understanding that every property is unique, no other property is identical on the face of the earth. You position in a property takes in many aspects, equity, appreciation, taxes are unique to you, there just isn't a way to specifically pin point a rule for all properties and owners.

Begin by understanding RE basics, the tax advantages, financing, market influences, repair estimates and maintenance to apply to your operation, but the 7-12 year range is mainly due to tax depreciation taken beginning to diminish over time, the greatest advantage is in the early years as appreciation is not considered nor increased rents for depreciation. :)

Jassem A. · Answer

The cost of the rehab becomes overwhelming if you pay too much for it every time and the investment may not be as beneficial long term if you pay too much for the house to begin with

Good help is hard to find and so are good deals

I wouldn't recommend landlording at a distance, or to those unfamiliar with basic home repairs, or to those who cannot self-manage.

Elizabeth Colegrove · Answer

Personally that is why I buy in appreciating areas so I can roll the money and keep improving my house choice when the house starts depreciating. I have family members that were landlords for 25 years. 13 years in the first house and 12 years in the second. When it started to get to the point where here was going to be a lot of repairs needed they sold and 1031 the house into another investment!

Some places like Jeff S duplex is old enough that there is no loss in valley. On the other hand the town that I invest in people tend to abandon the hold and build new. So you see the worst areas being older and the nicest being the newest. So in that situation I plan on selling and rolling the money!

Bill Gulley · Answer

Many variables involved, but generally, that is true, what is "long term" that's why I sold and turned the inventor at 7 to 8 years. A few went past, but consider taxes, neighborhood maturing, rental market, appreciation, price range you'll see that 7 to 12 years it is better to move on. Holding a property for 20 or 30 years may not be a loss but it won't be the most efficient use of your assets. You may not get to be poor holding long term, but you won't be as wealthy either. :)

Joe Villeneuve · Answer

A lot of things come to mind.  Usually, those that know me, would say I am never at a loss for words, however, having said that, all I can think of saying at this point is,...

"Huh?"

Joe VilleneuveREcapSystemA2REIC

Single-family Homes Are NOT a Good Long-Term Investment ?

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