High-priced or low-priced real estate?
That seems to be the first thing that new Real Estate Investors want to know. Which type should I invest in?
Or, more specifically, should I buy one expensive property, or should I buy three or four less-expensive properties?
I’d like to suggest that the answer is “neither.”
And further, I’d like to present a third alternative.
I think you’ll like this strategy.
HIGH-PRICED OR LOW-PRICED REAL ESTATE?
The question is usually stated, “Is it better to own multiple cheaper homes, or one expensive home?”
If you base your opinion on just those two choices, then it depends almost entirely on who you are, and where you are, and then after that, on multiple factors.
But, as I suggested, there is a third alternative strategy that will work for almost everyone, and almost everywhere, and it is safer because it is based on very reliable economic rules and factors that you can count on.
You should focus on the middle, with a mid-price home.
As a Real Estate Investor, once you have bought the properties, going forward, all you will really have are two concerns, or risks.
And you will spend all of your time managing those.
One is expenses, and the other one is vacancies. They will affect your income and profit more than anything else.
So, let’s look at those.
EXPENSES IN HIGH-PRICED AND LOW-PRICED REAL ESTATE
Each element of a rental property has a useful life – the foundation, the roof, the HVAC system, the plumbing, and so forth.
And since a cheaper home is usually an older home, each of the elements may be near the end of their useful life and ready for replacement.
For Example, a roof for a cheaper home costs almost the same as it does for an expensive home of similar size, and about the same as for a mid-priced home.
However, an expensive home is probably a newer home, and is less likely to need repairs.
But when an expensive home does need repairs, the repairs are like to involve higher-quality products or materials, which will cost more.
And if you should have damage in an expensive home and file an insurance claim, your insurance deductible is also much higher.
VACANCIES IN HIGH-PRICED AND LOW-PRICED REAL ESTATE
And this might be the most important aspect of your business strategy.
In bad economic times, tenants in expensive homes tend to move to a lower-priced property.
With your mid-priced home, you will be there to catch them.
And you will probably have a vacancy yourself, since your tenants will also be moving to a lower-priced property.
And in good economic times, you will see an increased demand for your property, as tenants in lower-priced properties are looking to move up to a better place.
And, again, you will probably have a vacancy for them, because your tenants will be looking to move up to a higher-priced property.
So, with mid-priced properties, you benefit from both good economies, and from bad economies.
Now, it’s true that you might have a better cash flow with cheaper homes.
And you might have greater asset appreciation with expensive homes.
But with mid-priced homes, you might be where you are safer and more comfortable.
I touch on this same concept in more than one of my books, but the one with the most detailed information is “Do This, Not That.” If you would like to preview it, you can go here on this website to look at it first, use the 3D Flip Reader to look at the Contents and read the first few chapters.
The paperback is available on my Amazon Author Page, along with my other books.
And I have related Articles about real estate investing and other real estate matters from other perspectives on my LinkedIn Page.
I am also active on Quora.com where I have answered over 300 questions, and they have almost 3 Million views.
And, if you happen to be doing, or if you are considering doing, a Section 1031 Like Kind Exchange, then you should start with a Dictionary, and I have done one, in 3 separate Blog Posts here: Part 1, Part 2, and Part 3. And I have a lot of material for you to consider on my S1031 Exchange website.
You should always check out the credentials of anyone, like myself, who you are relying on for accurate information by looking closely at their Biography. Here’s mine.
And if you think you might like to read one of my books, but can’t decide which one, here are four that I recommend.
I am an Attorney licensed to practice in Texas, North Carolina, Virginia, and the District of Columbia. But I am not your Attorney. I would be honored if I were, but I am not. Reading this Blog does not created an attorney-client relationship between us. Internet content should not be used as a substitute for the advice of a competent Attorney admitted or authorized to practice law in your state or jurisdiction.