Top 6 Real Estate Investment Property Types

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Real Estate is one of the most profitable investments you can make, but it’s also a business. Many real estate investors focus on buying rental properties that they don’t stop to consider what their long term plans are for these buildings. Various investment property types offer different benefits and have their own shortcomings.

Over the last 20+ years, houses have generally went up in price. Even after the housing crisis of 2008, by 2015, average existing house price was back to pre-2008 levels.

When purchasing properties, it’s important to take into consideration location, condition, size, age, tenant mix and rental history.

Location

The location of a property is the one factor that will have the most effect on its desirability, and therefore its future value. The old saying still rings true, “location, location, location”. There are a myriad of factors that determine how good the location is. Proximity to good places of employment, public transit, highways and good schools.

Condition

When selling a property, buyers are often concerned with how well previous landlords maintained the building. If the property’s walls are dirty or cracked, it may make potential tenants consider other options before renting from you. If there are signs of rust on the appliances or bathroom fixtures, then it will be more difficult for tenants to justify renting your property. One of the best ways to increase potential desirability is by making small repairs and upgrades to a building’s cosmetic features, such as paint and flooring.

Size

While it’s generally a good idea to own large properties that yield high rental incomes, this isn’t always true. Some investors prefer to purchase several small properties, rather than one large building. These investors benefit from having several income producing properties without the associated costs of a larger property.

Age

The age of a building is not always a negative quality, but real estate buyers tend to seek newer buildings. Appraisers generally consider anything built before 1939 as “historic,” and will add extra value to a property. If potential tenants are concerned with the age of a building, then it may be difficult for you to find someone who is willing to rent your space.

Tenant Mix

The tenant mix refers to the types of businesses that occupy a building. A retail or office building will have a completely different tenant mix than a residential building. This is because the types of businesses that are willing to occupy commercial spaces are different from those that will rent in residential areas. Some businesses look for locations with high foot traffic, while others prefer unobstructed window views. Sometimes it’s necessary to re-paint or re-carpet the interior of your building to attract different types of tenants.

Rental History

The rental history of a building is determined by its tenant turnover rate, or the number of times existing tenants have moved. If your building has low turnover rates then you can expect to receive more offers than if it had extremely high turnover rates. It’s important to remember that tenancy isn’t the only factor that determines a building’s value. You can add value to your properties by understanding these factors and making necessary changes.

With thorough research and planning, you should be able to find a property that both maximizes your potential profit and minimizes risk.

That being said, the real estate market is a thriving industry, with property being bought and sold all around the world. The market depends largely on the economy of any given country. It has been growing exponentially in almost every country, except for those that are struck by economic or other natural disasters. Whether you have a certain type of property in mind already or are still trying to figure out what kind of investment would be right for you, this article will explain the 6 most popular types of real estate property today.

Let’s dive into various investment property types.

Single Family Homes

A single family home is exactly as it sounds: a one-family house. These homes are most often built by private developers or the owners themselves with the intent of occupying the building for themselves and their families. For this reason, these homes will usually be located in neighborhoods that are considered to be good and safe places to raise a family. However, these homes are also built for investment purposes. To make the most out of your money when purchasing one of these homes, it would be wise to look in areas that are growing and will likely continue to grow as time goes on; this way you can enjoy a high return on your investment.

✅ Pros of Single Family Homes

  • Can be built for personal use or as an investment
  • Located in neighborhoods that are considered safe and enjoyable
  • Ideal for those who intend to raise families themselves
  • Provides a good return on investment
  • ❌ Cons of Single Family Homes

  • Location is paramount; you cannot move a single family home (without extreme effort)
  • Requires a significant amount of money up front
  • Very little opportunity to make a return on investment
  • Difficult to defend from those looking to take advantage of the home’s vacancy or storage space for illicit material.
  • Multi Family Homes

    Multi family homes, as you might have guessed, are buildings that offer more than one apartment or unit for occupancy. When you think of multi family homes, what comes to mind is an apartment complex or building. These homes can also include commercial properties like strip malls or office buildings that have several units available in one large structure. Large complexes will often offer amenities like pools, gyms, and other recreational areas for the comfort and enjoyment of their tenants. It is important to remember while purchasing a multi family home that location is still the key factor in determining price. Just because there are units available for occupancy does not mean you will be able to find a buyer right away or make a significant return on your investment.

    ✅ Pros of Multi Family Homes

  • Location can determine whether or not it will sell immediately
  • Many units available for occupancy will increase your chances of finding a tenant quickly
  • Makes it easy to find financing for your property
  • ❌ Cons of Multi Family Homes

  • Location is still important; you do not want to buy in an area where no one wants to live.
  • Requires money up front to make repairs/remodels.
  • More time and energy is needed to manage tenants; actions like evicting or suing often costs money and time.
  • Fixer-Uppers

    Fixer-Uppers are exactly what they sound like: homes that need some work done to them in order for them to be livable again. Whether the home is uninhabitable due to poor structural integrity or simply lacks basic amenities, these homes can provide you with an opportunity. The chance of having a tenant pay your mortgage every month while you complete repairs on a property is one anyone would be crazy to turn down. But before you start looking for fixer-uppers, there are some important things you should understand. These homes can be very rewarding but require patience and money. You will not want to purchase a home that needs too many repairs because the amount of time it takes to complete all the work will end up taking more time and money than you had anticipated. If you do not have enough to complete several different jobs on a house, your best bet would be to stick to one large renovation plan.

    ✅ Pros of Fixer-Uppers

  • Can significantly increase value of a lower market home
  • Allows you to put your own personal touch on the design and construction
  • Ease of finding fixer uppers due to low demand for unrenovated homes
  • ❌ Cons of Fixer-Uppers

  • Requires significant investment in renovations before you can expect high returns on it
  • Difficult to determine what changes need to be done and how costly they will be until the job is already started
  • Difficulty finding contractors who are willing to work for such a low rate and in turn they may not do the best job
  • Condos

    Condos are essentially large individual homes that have been converted to a smaller, multi family housing unit. Often the layout of condos is similar to that of apartment buildings where you will find all of the units in one location sharing common areas like pools and gyms. They can vary from simple duplexes to large multi-floor buildings. Like other multi-family buildings, condos usually include amenities like pools and other recreational areas for the benefit of its tenants and their guests.

    ✅ Pros of Condos

  • You can buy one in an area that is more suitable for you than buying a single family home.
  • If you are new to real estate investing, condos can be easier to manage than houses because there’s less square footage to take care of and your expenses tend to be lower.
  • Condos are known to appreciate in value at a faster rate than houses.
  • Condos are easier to finance because the developer usually takes care of some costs, such as landscaping and snow removal.
  • ❌ Cons of Condos

  • Lots of maintenance and repair
  • Opportunities to make a return on investment are often minimal
  • There are a lot of rules and regulations: Complex owners associations have an entire set of rules you need to know about and abide by.
  • Condos encourage tenancy turnover: As much as we all want to believe that our properties will be occupied by devoted tenants for life, the truth is that turnover can be very high.
  • Townhomes

    Townhomes are essentially large duplexes. They can either be attached or detached from other homes and they usually consist of a single floor with multiple units in the same area. Townhomes are often more expensive than condos due to the additional features that usually come with them like pools, sun decks, and other recreational amenities. Townhomes can vary in design and sizes but they all share a similar trait of being large units with multiple units per building.

    ✅ Pros of Townhomes

  • Inexpensive Housing: Townhomes offer a very inexpensive way to buy housing in the city. Many of them are newer and have good amenities that come standard, such as dishwashers, washer/dryers, and other perks that might require you to fork out more money for a house.
  • Maintenance: If you’re buying a home, it’s likely that you don’t have time to do your own maintenance. Townhomes are often in complexes with some amenities like pools and gyms which can make keeping up with the house easier if you don’t want to mow the lawn, shovel snow, etc. Oftentimes they also come with their own HOA which can help take care of some of these things.
  • Quick and Easy: Closing on a townhome typically takes far less time than it would taking out or refinancing a larger loan for a house (not to mention finding the right house). Why is this good? Because you can move in within weeks instead of months!
  • ❌ Cons of Townhomes

  • May be more expensive than single family homes, but often much less than apartment rent in the area. And when you consider that your monthly costs for utilities are much lower than in apartments or single-family homes, townhomes will usually compare very favorably.
  • May require homeowners association dues, which can increase your monthly living expenses.
    • Townhomes in specific neighborhoods may be surrounded by more noise, including neighbors’ televisions and dogs, kids running around or playing outside, etc. (though many townhouse owners install fenced yards to keep neighborhood noise to a minimum).
  • Are typically attached to other homes on at least one side – if your neighbors are not careful with turning on lights, running appliances, etc. you may have some late night light coming through your windows.
  • REOs/Foreclosures

    REOs are homes that have been foreclosed on by the bank or lender because the previous owner was unable to make their mortgage payments. Since this is usually done during times of financial hardship, REO homes tend to be in very poor condition and may require significant repairs before they can even be considered habitable again. Generally, any home that has not been foreclosed on, but is still in bad financial standing, can be considered a “distressed home” and will fall under the same category as an REO.

    ✅ Pros of REOs/Foreclosures

  • Can be purchased at a low price compared to similar homes
  • Usually comes with property left behind by the previous owner
  • Appealing to those who are looking for a home that needs some work done on it
  • ❌ Cons of REOs/Foreclosures

  • Requires significant investment in renovations before you can expect high returns on it
  • Difficult to determine what changes need to be done and how costly they will be until the job is already started
  • Difficulty finding contractors who are willing to work for such a low rate and in turn they may not do the best job
  • Difficult to defend from those looking to take advantage of the home’s vacancy or storage space for illicit material
  • Usually require a lot of time and energy to get up to code with city regulations
  • Any investment property can be a good deal

    That’s all of the rental properties covered! As you can see, each type of property has its own unique pros and cons. This is merely a general list that will vary depending on your specific situation and neighborhood, but it should serve as a good starting point for what to look out for while you’re making plans for the future.

    It’s important to choose the right type of house to use for your business. Your choice will not only affect the success or failure of your business but also your safety, comfort, and financial stability. The wrong house can cost you money in the long run via excessive renovations or lost revenue due to poor occupancy rates.

    Make sure that before you even start looking for your home that you have an idea of what type of business you’d like to run, how much money you’re willing to spend on it, and the type of tenants you want to attract.

    Happy Investing!

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