Investment Property Types
For new real estate investors, the type of investment property they choose can significantly impact their success. While many believe single-family homes are the only affordable option, there are surprisingly affordable multifamily and commercial properties on the market as well.
To help investors make an informed decision, we’ve compiled a list of the pros and cons of each property type.
According to the American Apartment Owners Association, single-family homes are a cheaper alternative to multifamily and commercial properties. Many renters prefer living in a one-family residence, making it easier to attract potential tenants. Additionally, securing financing for a single-family investment property is typically simpler and requires a lower down payment than other property types.
Maintenance is also easier to manage since the property is smaller with fewer residents. This allows investors to spend more time addressing tenant needs.
Home Real Estate and Investor warns that the potential for substantial revenue from a single-family property is lower than multifamily or commercial properties. Investors may not see considerable profits after expenses.
According to Investopedia, multifamily properties offer the most stable return on investment. If a tenant moves out, there are still other tenants providing cash flow. Additionally, maintenance costs are generally lower because there is only one front door, one exterior, and one roof to maintain.
The American Apartment Owners Association notes that more tenants mean more revenue, but also more potential problems with problem renters. Screening tenants is crucial. Also, if appliances and utilities break down, it can become more expensive to maintain the property than anticipated.
Commercial properties tend to have high-end renters, which can lead to substantial revenue for investors who invest in the right property in the right market. According to Investopedia, economies of scale also increase with this property type.
Commercial financing often comes with higher interest rates than loans for single-family and multifamily properties, notes Scott Ficek, an investment property expert. Inexperienced investors may need help understanding how to effectively operate a commercial property.
In summary, new investors have more affordable options than just single-family homes. By weighing the pros and cons of each property type, investors can make an informed decision that suits their financial goals and investment experience.