Everyone wants/needs a place to call home. For some it may be an apartment but for many a single family home is a better option. Single family homes can offer occupants numerous features with privacy and a yard leading the list of desired amenities. Homes exist in all price ranges allowing every family an opportunity to create a special place for themselves and their families. The essential nature of a home underpins the entire single family home market.

A generally accepted part of the American dream

It is a commonly accepted American dream to own a home. Approximately two thirds of American families are in homes they own. You never here the phrase, “the pride of renting”, but a portion of the population does prefer to rent for various reasons and this presents certain opportunities for those prepared to serve this need.

Enormous market scale

The residential single family home market has an estimated value of over 21 trillion dollars which makes it far larger than the commercial real estate market.

Easy to buy

There is no shortage of strategies to purchase but they all revolve around the fact that there is no shortage of sellers. Easily searchable sites of sellers listed with brokers, for sale by owner advertising, public records of court cases including foreclosures and more make the sellers clearly visible. Title insurance and standard settlement procedures efficiently assure you that you are getting what you have paid for.
           
Simple to sell

Some may say they can not sell, generally it is that they can not accept certain terms for personal or financial reasons. They can not sell because they think the price is to low, they have title or debt problems. Real estate is rarely worth nothing unless it is impaired by some environmental or structural factor. The transactional elements of the sale are very strait forward.  Purchase contracts, disclosures, deeds, settlement agreements and so forth are largely standardized.

Easy to finance

Good credit or bad, a huge set of options are available to leverage a deal, many well funded entities like FNMA, exist to create liquidity in lending. With portfolio lenders, hard money lenders, seller financing and private mortgages the options are endless. Most transactions can be financed but the costs, loan to values and down payment restrictions can push a transaction to being unprofitable. The investor with good credit and cash can make more from the same deal than someone with bad credit and little cash. A common financing method for deals to mitigate the lack of cash or bad credit is double closing or assigning for a fee a purchase contract for an unclosed transaction to another investor. Bottom line is with enough effort a good deal can be financed.
           
Easy to insure

Numerous companies compete for this business and it is a well established fully regulated market. The costs and coverage does vary widely with the costs increasing dramatically for conditions such as vacant or coastal properties. The credit rating and claims history of the insured will also affect the cost. The cost of insurance must be calculated into the feasibility and may result in killing a deal. Insurance provides an essential safety net and it is readily available.

Getting easier to hedge against loss of value

In a number of lager markets like Miami, New York City or Chicago residential real estate owners can purchase protection in indexed based futures products specifically for single family homes. The Chicago Mercantile Exchange (CME.com, housing futures) provides a national index as well as the larger submarkets that have their own indexes. The area that I currently operate in is not part of a submarket and the national index is not well correlated with our local market so I do not currently hedge my positions. I am investigating a submarket index product that has been created for Syracuse New York area and I hope to see the availability of this product expand to other smaller submarkets. If you are operating in an area covered by a well correlated index you should investigate the purchase of futures. If the value of the single family home index declines as measured by the actual sale and resale activity in the area cover by the index (case/shiller for CME) the value of an option would increase proportionally. Since the product is index based you do not need to sell the house or you could even sell the house for more that you bought it for and still profit from the option.
           
Excellent transparency of key elements

Our forefathers created a system of public records noting for all to see, deeds, mortgages and other items. The power of computers makes it simple to do the necessary research on transactions and the key players. Some people use entities other than themselves to hold title but most people still hold title to their properties themselves. Even if an entity like a corporation or partnership holds title or a mortgage a quick check of the states records will reveal key players like the Statutory Agent or General Partner. You can find the sales histories of properties, including sales dates and amounts, find out if some one is involved in litigation, if they are current on property taxes and so much more.
           
Limited variables

If a stock that was trading at $100.00 per share suddenly goes to $50.00 it may be a buying opportunity but it may not. To determine weather to purchase this stock you can look at almost unlimited variables and once you buy it you could see it quickly go to $0. Residential real estate purchased properly should not expose you to such volatility and the variables are much narrower. Many risks such as the condition of the property, its location, sales prices of other homes, asking prices of other homes and asking rent can quickly be determined and analyzed.
   
Substantial inefficiencies in pricing

The single family home Market is not as efficient as a stock or bond market. If an investor wants to sell a publicly traded stock he can do so in a fraction of a second and at a price defined by the entire activity of sellers and buyers for that particular security. Securities markets are not only quick they are cheap to transact in, you can sell hundreds of thousands of dollars in stock or bonds for twenty dollars, this makes them liquid. Real estate on the other hand offers much higher turn times and costs. The good news is that a knowledgeable investor can benefit from these inefficiencies. The fair market value of a home may be $200K if sold to an owner occupant and it may take many months to close. A seller who needs less than the full price is often willing to accept less for a sale that closes quicker and easier. A portion of the time to sell a home is related to, making it cosmetically appealing, showings, negotiating contract provisions, clearing buyer’s inspection and clearing buyers lenders underwriting. I have purchased hundreds of homes in good condition for substantially less than their fair market value from individuals who had no mortgages by letting them pick the closing date, pick possession date, waiving financing contingencies or inspections.

Product diversity

You can find homes in move in condition or in need of great repair. You can find new or old and anything in between. Tightly packed condos to palatial acres, large, small and any price from a few thousand to millions dollars. You can become a deed holder, a mortgage holder, an option holder and so on. The beautiful part about this is that they offer investors tons of options and the flexibility to target the transactions that best suit the investors, skills, knowledge and financial resources.

Tax advantages

Tax authorities offer a huge incentive to real estate investors. You can deduct deprecation to shelter current cash flow from incomes taxes, defer capital gains with 1031 exchanges, pay taxes on very low capital tax gain rates, pay taxes on gains over long installment sale terms and more.