If you’re interested in delving into the world of property investment, you’ve come to the right place. Real estate is one of the best financial investments and has a great opportunity for growth that you may not find elsewhere. With that said, it’s important that you do your research to ensure you get the best rate of return in line with your needs and financial plans.
One of the many decisions any property investors need to make is what type of property they want to invest in. What is best for your specific needs, wants and desires? A single-family home, multi-family dwelling, or townhome? This is one of the most common questions new property investors find themselves facing and it’s obviously one of the first decisions that needs to be made.
Single Family Homes
Single family homes are the most popular type of rental property, particularly among new property investors. Often single-family homes become rentals by default. For example: the owner decides to move and keeps the home as a rental property rather than selling it. Other times it’s a family home that is inherited. There are several pros and cons to purchasing or keeping a single-family home as an investment property:
- Single-family homes are easier to finance
- Single-family homes have the potential to attract a greater number of potential tenants, as they provide privacy, more storage, and larger outdoor spaces
- Rent rates are usually higher per dwelling
- Insurance is often easier to obtain and often at a better rate than some other types of properties
- Single-family homes have a greater resale potential as they attract a greater number of buyers or other property investors more than other types of properties
- Single-family home investment properties do not allow you to spread the expenses across multiple units
- Multi-family homes have the potential to bring in more rent in total, as there are more units to be rented to multiple tenants
- Single-family homes tend to be in neighborhoods that have additional fees, such as HOA fees or other maintenance that are not traditionally passed on to the tenant
As the name suggests, a multi-family property has multiple units that are rented to multiple tenants. For example – duplexes and triplexes. There are two types of multi-family properties – small and large.
Small Multi-Family Properties
These types of multi-family properties include duplexes and triplexes. Typically, a property is considered a small multi-family if there are two to four units.
- Multi-Family properties give the investor the ability to rent to multiple people and collect multiple rents
- Multi-Family properties give the investor the ability to spread the cost of repairs and other expenses across multiple units. For example: if the roof needs to be replaced, rather than having to deduct that from the monthly rent received from one tenant, it can be divided by the number of units. Same goes for routine maintenance and services, such as landscaping.
- Multi-Family properties are harder to rent than single family homes
- Multi-Family properties require more work up front to properly vet and screen potential tenants
- Maintenance requests may increase in frequency and it’s rare that any two tenants will be up for renewal at the same time, resulting in the need to go through the marketing and re-rental process multiple times throughout the year
- Local building codes may vary for multi-family properties, resulting in large up-front expenses. One of the most seen are fire suppression systems
Large Multi-Family Properties
Large multi-family properties include those that have five or more units, such as condo and apartment buildings. These types of properties are not meant for the novice property investor. Larger multi-family properties are usually owned by corporations who have the resources and abilities to maintain, rent and service the properties. You may already have silent ownership in a multi-family property if you invest in certain types of funds, such as Real Estate Investment Trusts.
So which type of property is best for you? Well, that’s a hard one to answer because no two investors are exactly alike. There are many questions you must ask yourself before deciding which type of property fits your long-term investment strategy the best. For example:
What is your goal as a property investor?
Each type of property has its share of pros and cons, so it is important to research which type of property best aligns with your goals.
Where will the property be in relation to where you are?
Properties that require a more hands on approach, or in the case of multi-family properties may result in the need to market and re-rent multiple units per year. Depending on where you are in relation to the property this can be more difficult than single family homes.
What will it cost?
It is important to ask yourself what you want to invest up-front. Different properties are more expenses and will have different up-front fees, which can affect how quickly you start to see a ROI
What are the additional fees associated with each type of property?
Whether it’s HOA fees or taxes, each type of property has unique fees that are traditionally paid for by the investor and not the tenant, which can affect your bottom line.
What will be involved in marketing and renting the property?
Multi-family units involve more intense marketing and screening as each unit needs to be rented individually and often on a varying timetable.
Who will manage the property on a regular basis?
Particularly if you’re new to the real estate investment world, it can be difficult to manage multiple properties at once.
How will you handle property maintenance?
Each type of property will have its own needs when it comes to maintenance. The more units you own, the more maintenance will need to be done, which comes down to how much time you want to invest
What will happen if you want to sell the property?
Single-family units attract a larger number of buyers and are easier to resell if you decide property investment is not for you
Whatever you decide to do, it is important to do your research before moving forward to ensure you are making the best decision for your investment needs.