Hello Awesomely, Peter Vekselman and Julie Hicks Muse here.
So, when we worked with JP on creating the training for Default Deals, there were a number of asset classes that we could have focused on in the context of the training. Not only single-family homes, but commercial real estate and land — the Default Deals framework can be applied to many asset classes. But by far, our favorite asset class is investing in houses — single-family residences.
So for this blog post, we’d like to concisely share with you why that is.
Peter: Well, there are 2 main reasons I like single-family homes. #1 is ease of use.
Let’s face it, it’s great looking at a 100-unit apartment building or raw land that needs to be developed, but those are long-term plays, and they’re a lot more difficult any way you slice it.
So for me, when I got started a couple of decades ago, just because of ease of use, it’s a lot easier to do single-family homes. They’re not as big. It’s easier to get them financed. They’re not as long to come in and out of. They’re a lot more forgiving. There’s a lot more buyers for them.
When you put all those together, in my opinion, and I think in the opinion of any real estate investor, it’s a lot easier to do a single-family home than a subdivision, for example.
The second reason is because of a simple philosophy I have. See, when you figure something out, the goal is to get better at it…
Whereas horizontal growth is the person who has 30 different things going on… 30 techniques… 30 strategies. And when you analyze their business, none of them is really working well. They’re just plate spinning.
I like vertical growth, when you figure something out…
And by the way, it took me a while to figure out single family. I don’t want to make it seem like you could just get in tomorrow and start doing deals. As a matter of fact, the first 6 deals I did, I lost everything I had.
When I finally cracked the nut on the single-family strategies and techniques, how to find them, what kind of sellers you’re negotiating with, how long it usually takes, raising the money — I could have just potentially said, “let’s get into 4 or 5 other strategies.” But I didn’t.
I’m more of a believer in scaling what you have.
And! It’s still easier than the big deals. It’s still more forgiving. It’s still quicker from A to Z. The money is still more readily available for those homes. More demand.
So, for me, single-family homes were the obvious way to get started… and a couple of decades later, it’s just the most obvious thing to continue with.
What about you, Julie?
Julie: Well, this might seem silly, but I think it’s more fun…
When you’re doing a commercial deal or a big land deal, you’re dealing with brokers and banks. You’re not dealing with the actual seller of the property. Usually, it’s somebody who represents them, like in an apartment transaction, and everything in those transactions is very black and white, all about numbers.
And another thing that I love about single-family homes is that it’s different every time. It’s fun because it’s like a new challenge and not based off just the numbers all the time.
Again, when you get into apartments or commercial deals, it’s all about numbers.
When you’re working direct to seller in a single-family home aspect, every seller has a different issue. I find it absolutely fun to be able to solve these problems with somebody.
I’ve never been the type of person where I could do the same thing day in, day out. It’s boring to me. So for me, single fam is not boring because it’s not all about numbers and it’s fun because of the variety of what you get day in and day out — no deal is ever the same.
Peter: Yeah, no question. Like we always say: Every deal has a story.
And here’s another thing…
There used to be nothing where our office is near Atlanta. Now, right to this side is a huge outlet mall and tons of restaurants, bars, entertainment. Infrastructure. It’s like a whole city.
And that’s really because of the single-family residences.
Bottom line is this: There’s more and more demand for single-family properties. Is there more demand for commercial, too? Probably, but it’s very small in proportion — there’s only so many people who invest in commercial real estate and we now have to consider the work-from-home trend from Covid.
Julie: Right, and while many people like the inner city, more and more people like the suburbs. So generally, suburbs keep getting bigger. And that’s why there’s more demand here.
Plus, taxes are less — spaces grow outward, away from a big city.
Peter: Yes, and what do people need when they move? Somewhere to live. Not everyone who moves needs an office building. Not everyone who moves is going to open their own grocery store. But everyone needs a place to live. So the reality is, I was just looking at some statistics…
The demand for single-family houses is still going up, even though we’re talking about recession and high interest rates… there’s still demand.
So, like I touched on earlier, if you’re at a crossroads, trying to figure out what you should do: single family or apartments or commercial route — consider the financing.
This is a very important point… it’s not that easy to finance a commercial property. Typically, there’s very little opportunity there, because maybe you’ll get a 50% loan on it. (Unless it’s a crazy incredible deal, getting a 90% or 95% loan.)
And if you want to scale something, you have to consider where you’re going to get your money, and what the ease of use is in terms of getting money.
Think about this again…
We’re so embedded in the single-family homes. And a place that I get my money is from hedge funds. At a single-family home level, billions and billions and billions of dollars is coming right from hedge funds. And I don’t know if they’re moving that same money over to the commercial side.
Julie: So, I’m not buying houses on the real estate market, even though I love working with real estate agents. I’m not buying them from other wholesalers. I’m generally going to find motivated sellers in my area and work with them.
But the thing that I love about single-family homes, too, is the fact that there’s more options.
Because I’ve done a lot of different strategies, I’m able to go to an appointment and not offer just 1 thing. I’m able to offer a cash deal and owner financing and subject to and fix-and-flip.
And, I like the challenge and the opportunity that solving problems through REI gives me because, like I said, that’s more fun to me. A truly good real estate investor in the single-family home space understands how important it is to solve problems first. If you learn how to solve problems first, you’ll generally be successful in this business.
If you go into it just wanting to make another dollar, you’re going to have a hard time convincing sellers to go with you when your first thing is: What can I make off of them?
But if you go into it with the mindset of: Let’s solve this house problem, no matter the economy — you’ll do well, because in any economy, the solving-problems strategy is better than the how-much-money-can-I-make strategy.
Peter: Well, here’s the thing… think about this on the commercial side. We’ve been in a handful of different offices… when we got our offices, did we go hug the landlord and do all the niceties? No, it’s kind of impersonal.
But, in single-family homes, we’re changing people’s lives because of what we were able to provide for them.
Julie: That feels good, and it’s a lot more fun. And we’re solving problems on the seller and buyer sides.
Peter: And yes, I have done some commercial, but it’s been kind of by chance. Same with a couple land deals. And interestingly, I’ve only flipped one apartment building my whole life.
So I think for us, it’s easy to say we’re single family.
All these reasons sound like it’s a pretty smart idea to invest in single-family homes. Perhaps you’ll give it a go today, too.