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Houses Are Better Investments - Not Apartment Buildings, Commercial or Land

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Below I will explain why houses are better investments than Commercial Space, Apartment Buildings or even Land.  I will also tell you why investing in anything other than houses is flawed.

Commercial property seems like a good investment especially Commercial Office Space.  A lot of REIT's buy Commercial Office Space.  Donald Trump loves commercial space but he knows what he is doing and his space is in New York City.  He understands that his branding plays a lot into his product that he sells.  People in New York would rather rent Donald's stuff even though it is a little more expensive.  Also look at Donald's investments.  Several of his buildings are a combination of Office and Apartment Space.  He understands that if commercial tanks that he can still rent or sell the apartments.  However lets come back to Earth here.  I live in Colorado.  I understand this market.  Some commercial property goes vacant for years when the market changes.  There are huge swings in value when the market heads south.  How do you appraise a vacant commercial building?  I can tell you that it is not worth much.  Does anyone want to buy something that negative cash flows?  That doesn't make sense to me.  Why don't those commercial guys swing with the market?  Why don't they cut their rents in half just to create something?  Why don't they move quickly?  Because they can't or won't maybe.  I think it is more pride than anything and they are willing to negative cash flow for year because their product is superior.

Apartments make a little more sense to me.  Everyone needs to live somewhere.  But when there are less people in a metro area due to a bad job market vacancy rates increase.  Again the Apartment owners have no control over that.  Maybe they try to advertise incentives or free rent but their vacancies always increase.  Apartment dwellers are very nomadic in nature anyways.  Some love to only stay for 6 months and then move somewhere else.  If you mess up once in the management of your apartment, your tenants will be looking where they want to move next.  Also a lot of apartment renters will eventually upgrade to a house!  Go figure.  If you are like me, you don't like living communal style with shared walls with people who could act like bad roommates.  I did that in college.  Now that I have a family, I want my own property and a little privacy.

Land.  Land is very speculative in nature.  Land is very hard to appraise.  Land without buildings has very little use.  I think Land is the worst investment anyone could make unless you want to camp on it for a very longtime.  Don't get me wrong some people have made money on land.  But that usually takes a lifetime.  If I bought Colorado back in the day for $100 I would of made a profit.  But that is not how it works now.  God for bid you needed your investment money back and the market is like what it is now.  I know some people especially builders that have loans on land right now and they won't be able to sell it for years.  But they have to make payments every month.  You also can't easily rent land.  Commercial and Apartments are easier to rent than land.  Maybe you can rent it to some cowboy so he can put his cows somewhere but good luck on that.  Some investors that I know that have ended up with land in their portfolios can only usually sell in hot markets.  In any other markets they can only sell with some type of owner financing.  When you sell on owner financing you should always expect to get the property back.

Now - the real investment - Single Family Homes.  Basically houses are more liquid.  You can still go down to the bank in this bad market and get a loan at almost 100% against them.  I won't say it is easy to do it but banks are still giving those loans.  Just try to get a loan against anything else today, you will have to bring a large down payment.

Also there is no reason for a house to be vacant.  As an investment if a house is vacant you are either a bad manager or you are a home owner in distress or a bank.  Like I said before homes are the most liquid of any real estate.  If you need your money back quickly it is easier to get it back if it is in a house.  Homes are easy to sell in any market (if you know what you are doing) and easy to rent in any market for the right price.  If you can't sell for the price you want then they are easy to rent even if vacancy rates are high.  You can still rent a home, provided it is not trashed, weird or obsolete.  People want to live in homes.  I want to live in a home and I would guess that you do to.

Commercial property like Apartment Buildings or Commercial Space and Land swing with whatever is going on in the market.  If it is a bad market then vacancy rates increase.  Think about that.  Even if you are a great manager you could still loose tenants.  You absolutely have no control over the market.  You can still loose cash flow.

In conclusion if you are looking at investing in Real Estate please study what you are getting into.  REIT's have good sales people that make a lot of money and know how to get you excited.  I will blog about REIT's at a later date.  Also large buildings and large land deals sound like they will just spew money at you.  But I know several people who have lost their whole investment on those supposed great deals.

Please feel free to comment below why I am write or wrong.  I would love to hear your feedback.

And as always please feel free to contact me or ask me a question on investing.  I am here to help.




+2 #2 2010-05-21 02:24
I totally agree on you. Housing is a lifetime investment which guarantees to have increasing value over the time. Unlike apartments, buildings and commercial space, houses are very tangible assets that are less prone to vacancy. It also requires minimum managerial task and business deals.
+3 #1 2009-11-23 21:46
Great work. Loved the blog. Great info. Thanks for all the tips.

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