Does the Building Type change your Purchasing Metrics?

[bizaro86]

Hello,

I was wondering what effect the type of building you are buying has on your purchase decision, with respect to small scale residential real estate. What I mean is, all things being equal, do you prefer to buy a house (suited/unsuited), a townhouse, a half or full duplex, a low-rise condo, a high-rise condo, etc.

If all of these types of property were the same price, and had the same expected cashflow considering all expenses, which would you buy, and why?

Food for thought,

Michael

 

[Berubeland]

House for sure.

With condos you run the risk of increased condo fees.

With attached houses you run the risk of crazy redecorating tastes to the house next door. I saw an awesome example one time. The house was painted bright pink and featured a sizable statue of Mary on the front lawn.

 

[Thomas Beyer]

QUOTE (bizaro86 @ Jul 22 2010, 12:11 PM)
..

I was wondering what effect the type of building you are buying has on your purchase decision, with respect to small scale residential real estate. What I mean is, all things being equal, do you prefer to buy a house (suited/unsuited), a townhouse, a half or full duplex, a low-rise condo, a high-rise condo, etc.



..


a HOUSE as it has more land per dwelling .. and you can control costs easier.



LAND goes up in value far more than the structure on it !!



Issue is that usually though house is far more expensive (given rent).



A better question to ask is: if I had XXXX $s what should I buy ?



Let's say you have $50,000. You can get a condo for 250K with 20% down and the rent might be $1000/month. or you can get a house, but it may yield only $750 (because it is probably a crappy house, or very small or in a small town). What is better ? [hard to say ...]



ALL asset classes work, but each has their own metrics and pro's/con's and as such have to be researched carefully.



Related posts:



5 ways to make money
http://myreinspace.com/public_forums1/General_Discussion/61-3347-5_ways_to_make_money.html



Do what you love: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-16722-Love_what_you_do_-_Do_what_you_love_.html



How to get started http://myreinspace.com/public_forums1/General_Discussion/61-4391-How_to_get_started_.html

 

[Nir]

QUOTE (bizaro86 @ Jul 22 2010, 01:11 PM) Hello,

I was wondering what effect the type of building you are buying has on your purchase decision, with respect to small scale residential real estate. What I mean is, all things being equal, do you prefer to buy a house (suited/unsuited), a townhouse, a half or full duplex, a low-rise condo, a high-rise condo, etc.

If all of these types of property were the same price, and had the same expected cashflow considering all expenses, which would you buy, and why?

Food for thought,

Michael
Thomas provided an excellent answer.

Personally, I don`t care about the type of the building. I am interested in maximizing net income.

Therefore, whichever has highest cap/down payment(%) wins. Statistically, the more units the building has the higher the ratio.

so on average a duplex is better than single family, 4-plex better than duplex, apartment building better than 4-plex etc.

Regards,
Neil

 

[Luong98]

QUOTE (bizaro86 @ Jul 22 2010, 01:11 PM) If all of these types of property were the same price, and had the same expected cashflow considering all expenses, which would you buy, and why?

A house that`s suited because as mentioned above you`ll have more control over your expanses and second if one unit is vacant atleast you`re only lossing 50% of your gross rent VS 100% in a condo or non-suited house.

 

[Thomas Beyer]

QUOTE (investmart @ Jul 22 2010, 09:53 PM) ..

Personally, I don`t care about the type of the building. I am interested in maximizing net income.

..
NOI .. over what period ?

A house may have a much lower annual NOI/cash-flow .. but is likely the better investment when viewed over 5 or 6 years !

 

[bizaro86]

Thanks for the perspective everyone. I`m currently investing in condos here in Calgary, for a couple of reasons.

1) There is less land per unit. This lowers my future appreciation, but the lower price per unit than houses means I have cashflow now. At this point, having non-cashflow properties would seriously impact my ability to qualify for new mortgages and grow my portfolio.

2) Someone else fixes the roof, mows the grass, and paints the fence. I have less control over my expenses, as mentioned, but its a lot less work as well.

3) Less cash upfront. This is an important factor for me, since I`m downpayment limited. It has also allowed me to get some diversification benefits by buying multiple condos in separate buildings. That means if one suite goes vacant, my portfolio is still not 100% vacant. To the person who suggested suited houses for the extra vacancy protection: Is a suited house for 300k better than 2 150k condos for protecting your cashflow?

That`s my perspective, and I`m interested to see the consensus of the opinions above is that houses are the way to go. Thomas, if houses are recommended, why does your investment firm deal mainly (if I understand your website correctly) in apartment buildings? Or is it mainly just a trade off between appreciation and cashflow?

Michael

 

[Thomas Beyer]

QUOTE (bizaro86 @ Jul 23 2010, 09:32 AM)
.. Thomas, if houses are recommended, why does your investment firm deal mainly (if I understand your website correctly) in apartment buildings?


Because I can't find houses that cash-flow as much as apartment buildings.



Example: we bought a 25 suiter in Yorkton, SK 2 years ago for $875,000 (or $35,000/door). The rent roll per month is about $12,000, then NOI about $7000.



Where can I buy a house, anywhere, that consistently cash-flows $7000/month after R&M, taxes, utilities, insurance and management ?



Today that asset has a rent roll of about $15,000 and is worth about $1.375M.



Can you get this kind of cash-flow and value upside in houses ? .... unlikely !



But I did, like most folks, started with houses and condos, as they cost less !



See here:

Do what you love: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-16722-Love_what_you_do_-_Do_what_you_love_.html

How to get started http://myreinspace.com/public_forums1/General_Discussion/61-4391-How_to_get_started_.html

How did I get started: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-15422-Is_my_goal_of_200K_annual_income_feasible.html





btw: our buildings come with land, too !

 

[Nir]

QUOTE (ThomasBeyer @ Jul 23 2010, 09:20 AM) over what period ?

Hi Thomas, 50 years.

However, any period you assume even 5 years, the same decision should be made to maximize CAP IF we assume the difference in appreciation between the different types of properties is infinitesimal - a safe assumption in a given area/neighborhood.
you actually strengthened this decision by providing an example above of a building appreciating even more so for sure buy a building knowing
its CAP is higher as well as mentioned.

Regards,
Neil

 

[housingrental]

OP: Houses to answer your question re upside on land values and barrier to entry on new supply in a developed neighbourhood. Go apartments once finances allow.

Neil: Though I support the higher cap rate goal I don`t think you`re correct. In many built out area`s over a longer term period houses (generally) outperform condo`s. Take a look at a lot of GTA and compare condo prices and housing prices from 10,15,20 years back for similar house.