Rental homes are super investments for part-time investors and even investors with millions to invest
Liquidity - you can sell, you can leverage better if you choose, including refinancing etc.
*Appreciation - a heavy land-based component leads to a stronger upside above the cost of construction. I touch on that concept frequently throughout this site.
Ease of Management - fewer tenants per dollar of rent leads to less headaches per dollar of rent.
Ability to find a Quality property! - Homes have natural turn-over, with many people actually selling that they’ve invested a lot into improving as they trade up or move for job reasons etc. Contrast this with duplexes and apartment houses where people hold the best properties for decades, and often generations. In my experience, the multi-unit buildings in the best locations with good floor-plans only come on the market when they become too much of a headache to own. Most often this is due to deferred maintenance. You will find harder to rent, higher turn-over multi-tenant buildings for sale more frequently. It takes a special sort of discipline to operate buildings where you need to accept tenants with spotty credit or where you have neighboring buildings with many drug users and related neighborhood crime.
Best Class of all for all but the biggest investors looking to invest in high income areas
Owning a piece property in a high income, land constrained area has easy to understand advantages
… but I’ve found what I consider an unusual resistance to the idea of buying rental homes from inexperienced investors. It might be difficult to look at a home in an impersonal - they might feel associated with a community personally if they own a home where they can keep an emotional distance owning a multi-unit building. I also think that a desire to see themselves as an “investor” requires the badge of ownership of a multi-unit building. It doesn’t need to be so.
Someone with 10 million to invest would of course have more options available to them, as would people looking for properties in different sorts of economies than the bay area (and especially Marin). Even with other opportunities, homes selling for 20 times annual rents compares very favorably to the high cap rates that “real” investment properties are commanding in this market.
Be sure to read the entry on apartment rental property and one-to-four units for a greater understanding.
In a future blog post I’ll discuss the exceptions to this rule, but they don’t pertain to Marin County properties.
Also see the future blog post “choosing a rental home”.