Many investors choose to invest in real estate by purchasing one, or more than one, single-family homes. They decide to rent these homes out because it seems logical and is easy to understand. It is also comforting to know that you have purchased a second home because you have seen the equity grow in your personal home ownership. If investors are looking for a more diverse approach to real estate, they might consider building a portfolio that includes a passive income of commercial real estate investments.
Investing and owning single-family homes can produce many challenges for investors. Below are some of the cons of choosing to invest in single-family homes.
Single-family homes normally do not produce a lot, if any, cash flow. Investors are aware of this but may accept this fact if they know they will be making a mid-term bet within the housing market. This then makes investors focus on the appreciation of the market.
If it is leveraged, a single-family rental will make the investor assume about a `100 percent lost of equity. This is a huge risk that many potential investors choose, or mistakenly choose, to overlook. There is another common scenario in which that owner of the rental has to pay a lot more than they did for their first investment.
If you own a rental you are either the one managing the property yourself, or you have to hire a third party to take care of the property. If you are hiring a third party, the third party will have to be paid separately which normally amounts to six to ten percent of your income from the rental.
When investors learn about passive commercial real estate investments, they may sway toward the direction of owning/renting commercial property. Investors can now even invest alongside other people as a limited partner with other commercial real estate companies. When investing in commercial real estate you experience many perks such as a more diverse portfolio, less chance of profit loss, and more stable income from the property.