Interested in investing in real estate? When it comes to commercial vs residential real estate, residential is the way to go. Residential properties offer many perks, including the simple fact that they have a lower cost of entry than their commercial counterparts.
Furthermore, residential properties are easy to get financing for. With some home mortgages, you can put down as little as 3.5%! In turn, residential real estate is more accessible than you’d think.
To maximize your residential investment, however, you must choose your property wisely. Not every piece of real estate has the same investment potential. This article will review each type of residential real estate and explain its pros and cons.
What Are The Different Types of Residential Property?
Residential real estate comes in many forms. While single-family homes are the first property type that comes to mind, you can’t forget the others:
- Multi-family homes
Types of Residential Real Estate Properties and Their Investment Potential
Whether you’re interested in in or out of state real estate investing, you should understand each type of property available. To help you make the right choice for your real estate investment, let’s review each type of residential property’s pros and cons.
When you think of a house, you probably picture what’s known as a single-family home (SFH, for short). These properties are characterized by:
- Private lots
- No shared walls
- No shared utilities
- On-site garages
As their name suggests, single-family homes are a popular option for families. Often located in the suburbs, they provide more privacy, storage space, and peace and quiet than other forms of residential real estate.
Another advantage of single-family homes is that they’re yours to do with as you please. As long as you follow city, county, and state housing regulations, you can renovate your home to your heart’s content.
The Investment Value of Single-Family Homes
As an aspiring real estate investor, keep these pros and cons in mind:
- Pros – Single-family homes hold their resale value quite well. They also attract high-quality tenants. You’re more likely to get a family that lives a quiet lifestyle than a rowdy group of college kids. Lastly, you’ll enjoy full autonomy over your property.
- Cons – With great freedom comes great responsibility. Unlike apartments and condos, single-family homes place all the maintenance burdens on the owner. You’ll have to take care of the yard work, plumbing, roofing maintenance, and repairs. Furthermore, single-family homes cost more to buy than other residential options, due to their lot size.
Of all the types of residential real estate, single-family homes are arguably the best real estate investment. That’s because SFR real estate holds its value and is always in high demand. They make it easy to maintain an attractive, low vacancy property.
Apartments are residential units located in apartment complexes. They’re one of the most common types of residences, with 36% of Americans living in them as of 2018.
While apartment units can range in size, they’re usually smaller than your average single family rental. Apartment units may have a patio or balcony, but they rarely have any private yard space.
Despite this, apartments stand out for their convenient on-premise amenities, including:
- Swimming pools
- Fitness centers
- Laundry facilities
- Covered parking
- Game rooms
- Computer lounges
- Shared outdoor spaces
The Investment Value of Apartment Buildings
If you’re up for the challenge, you can purchase an entire apartment building as an investment property. Here are the pros and cons:
- Pros – Apartment complexes are easy to get financing for since they guarantee a steady stream of rental income. By choosing quality tenants and keeping vacancies low, apartment complexes can also be incredibly profitable.
- Cons – From unexpected repair requests to problematic tenants, running an apartment complex is no small undertaking. Apartments require continuous marketing campaigns to keep them occupied. Lastly, apartment buildings have less liquidity than houses do, since they’re harder to sell.
Managing an apartment building is a big task, so many investors choose to outsource their property management to a team of professionals. This way, you can enjoy the profits without the burdens.
Condominiums, also known as condos, are single units within a larger residential building. If they sound a lot like the apartments you just read about, you’re right.
The difference between condos and apartments is ownership. Each residential unit is owned by individuals. Each condo owner has partial ownership of the condominium’s shared spaces and amenities. Conversely, apartment buildings are owned by a single person who rents out the individual units.
Since condominiums are owned by a group of people, they require oversight and management. Thus, they often come with a Homeowners’ Association (HOA) and Board of Directors. These groups decide the property rules, manage the maintenance, and charge fees to cover the costs.
The Investment Value of Condominiums
Here are the pros and cons to be aware of as an investor considering a condominium:
- Pros – Most notably, condos are cheaper than single-family homes. They give residents access to many attractive amenities that may not be affordable with a single-family home, like pools and gyms. Also, condos require less maintenance, since the building’s management takes care of most of it. As an owner, you just need to worry about the interior and immediate exterior of your own residential unit.
- Cons – Since condos are located in a complex and share walls with neighbors, they’re less private than single-family homes. They also have more restrictions on renovations. You’ll be beholden to the complex’s rules. For instance, the complex’s Board of Directors has the right to enforce pet and rental limitations.
In general, condos are a riskier investment than other forms of residential real estate. Since you share ownership with your neighbors, if they get foreclosed on, the value of the residential building could be impacted.
Additionally, many condominiums don’t allow condo owners to rent out their units. If that’s your investment plan, it may not be possible in certain condominiums.
Multi-family homes are houses that have been divided into 2 to 4 separate residences. Depending on the number of units, multi-family homes are referred to as duplexes, triplexes, and fourplexes. Typically, the entire multi-family home is owned by one person.
Each residence within a multi-family home has a:
- Unique address
- Set of bedrooms
- Private entrance
If you own a multi-family home, you can live in one of the residential units and rent out the others.
The Investment Value of a Multi-Family Home
Even though multi-family homes are the least common type of residential real estate, they offer some compelling investment benefits:
- Pros – Getting financing for a multi-family home is easy, since you can expect a steady stream of income from rent. If you choose to live in your multi-family property, you can keep a close eye on building repairs and upgrades, all while lowering your personal living expenses. Your tenant’s rent can easily offset your property’s mortgage payments and taxes. Lastly, you can write off your home maintenance costs as a business expense.
- Cons – Compared to single-family homes, multi-family homes offer less privacy, while requiring the same amount of maintenance and responsibility. If you live in your property, tenants may reach out to you more often, since they know you’re close by. The boundaries between you and your tenants can easily get blurry if you’re not careful.
If you’re comfortable living amongst your tenants, multi-family homes are a sound investment. They can bring in a substantial return and neutralize your living costs, saving you a great deal of money.
Townhomes are a cross between a single-family home and a condominium. While they look like a standalone house, they share one wall with the townhome adjacent to them.
Despite this, each townhouse is a unique residence with its own address and entrance, completely separate from the townhouse next door. Thus, townhome owners are responsible for all of their own maintenance expenses.
Many townhouses are located in communities that have Homeowners Associations, which set rules and charge fees. In turn, they also enjoy appealing community amenities, like clubhouses and swimming pools.
The Investment Value of Townhomes
Here are the investment benefits and drawbacks of townhomes:
- Pros – Townhomes are more affordable than most single-family homes. Since they’re smaller and have less yard space, they also cost less to maintain.
- Cons – The HOA fees and regulations that come with townhome ownership may be undesirable to some investors. Townhomes also provide less privacy than a single-family home, due to their shared wall.
If you’re investing on a budget, townhomes might be the perfect piece of real estate for you.
Great Jones – Professional Property Management
Each type of residential property has its benefits and drawbacks. The ideal investment for you will be based on your personal preferences and budget.
If you’re ready to invest in a lucrative rental property, consider partnering with the property management experts at Great Jones. Once you’ve purchased your investment property, they will take the following tasks off your hands:
- Marketing your property
- Screening tenants with background checks
- Collecting rent
- Providing resident support services
- Maintaining the property
- Organizing inspections and repairs
- Handling evictions
- Providing investment advice
Whether you seek out Great Jones for property management in Indianapolis or property management in Fort Myers, you can sit back, relax, and watch your investment earnings multiply. Whether it’s an SFH or triplex, Great Jones keeps everything running smoothly for you.
The Street. How Much is a Down Payment on a House? Do You Need 20 Percent? https://www.thestreet.com/personal-finance/real-estate/down-payment-on-house-14686280
Bankrate. What is an apartment? https://www.bankrate.com/real-estate/what-is-an-apartment/