Purchasing rental properties is an excellent real estate investment, and it can be a profitable business if you play your cards right. But before you do, you need to ensure that you are making an informed decision. One of the factors you need to consider is what kind of property type you should go for when you decide to buy a residential building.
Types of Residential Buildings
Single-Family Home
This kind of property is the preferred living space for families since it offers privacy and flexibility. It usually has its own entrance and yard as well, making it the perfect place for children to grow up. In terms of property management, you'll have an easier time overseeing operations.
Some examples of single-family house types are ranch-style homes, colonial-style homes, or even manufactured homes. Depending on the residential property, they can either be detached or semi-detached homes, wherein they share a wall with another unit.
Multi-Family Home
Multi-family homes can come in various types such as duplexes, triplexes, fourplexes, or apartment buildings when you want more than four units. The latter examples usually share more than one or two walls, which provides a bit of privacy between the dwelling units.
Since this will be a larger building as opposed to single-unit homes, you will have a heavier workload in terms of management. It also means that you'll generate more rental income from your investment property since you'll have more than one tenant.
Condominium
Condominiums are individual units in the same building but unlike multi-family residential buildings, tenants share common areas like gyms, pools, and other amenities. They also cost less than a single-family house, so it might be a good option for a first-time investment.
Depending on the number of condo units and the shared amenities the residential building offers, you might see higher maintenance costs since there are more living units to cover. However, there is a good chance that it will appreciate property values over time when you maintain it properly.
Townhouse
A townhouse is typically connected with other units but is still different from a semi-detached home. Unlike single-family homes, townhouses don't offer as much privacy, but it is still more private than multi-family units and has a separate entrance for each rental.
Most, if not all townhouses have two or more floors, which allows tenants to maximize the space. This can be a preferable option for families aside from single-family homes, as opposed to residential properties like studio apartments.
Mobile Home
Mobile homes were initially made to solve housing problems in World War II, but they remain popular today. They are among the cheapest individual-unit residential homes you can purchase and will require very low maintenance from you.
These one-story units are not traditional site-built homes, and the unit usually has a low-pitched roof. There aren't many options with architectural styles since most are built in a rectangular shape. Despite not having a permanent foundation, the real estate unit is still established with sturdy building materials and has the basic amenities tenants need.
Factors to Consider Before Buying a Residential Property
Location
Residential properties in proximity to schools, public transportation, malls, offices, and other important locations attract more potential tenants due to the convenience they bring. For instance, purchasing apartment buildings in urban areas or near a college would make more sense.
Market Demand
There are various factors to consider when it comes to the market condition of the rental industry. Some of them include economic conditions, local market trends, population growth, interest rates, and more. These will determine whether your property will generate income in the long run.
Property Condition
The condition of the real estate property you intend to buy can add up to the expenses related to remodeling or renovating it. Tenants are more likely to rent from you when the living spaces are well-maintained, so you might not have a choice in the matter, and it would be better to just buy a property in good condition.
Investment Strategy
Residential properties have their own appeal when it comes to generating income. For instance, multi-family buildings will require a bigger downpayment, but the return will be more significant since you will have more than one tenant to collect rent from.
Loan Type
You might also want to consider what kind of loan you're getting. Is it a government loan or a private lender? Can the potential cash flow of your rental business pay for your monthly mortgage bills? How long before you pay the loan off if you purchase a particular property?
Active vs. Passive Management
You need to determine how involved you want to be in the day-to-day operations. You can manage the rental business yourself for a more active role, or hire a property management company to handle everything as you earn passive income. Green Tree Property Management, for instance, can take care of:
- Marketing
- Tenant Screening
- Rent Collection
- Maintenance
- Accounting
- Eviction
You might not need to hire professional management for certain types of houses like a tiny home, but you could need assistance for a building with more than one housing unit like an apartment building. Even the maintenance of common spaces shared by tenants can be tedious.
Residential Properties FAQs
Should I consider architectural styles when purchasing a property?
Yes. Some designs like Tudor-style homes or prairie-style homes are better off in suburban settings, while industrial or streamline-style buildings are suited in an urban location.
How should I inspect the property condition?
Consider things like when the home construction was. Houses built decades ago tend to be sturdier even if they appear a bit worn down. That means you won't have to do much in terms of renovation since you can simply clean the place up.
What amenities should I offer in multi-unit rental properties?
Depending on the property, the most common amenities include laundry facilities, parking spaces, a gym, and a study area on the first floor. You should also have a lobby near the front door or main entrance for receiving guests and tenants.
How much do I need to invest in a rental property?
That completely depends on what kind of rental property you plan on buying. The bigger the building, the more you have to spend. The location of the real estate investment will also factor into the property value.
Should I Hire Professional Property Management?
If you're a first-time residential property owner, hiring a property manager might be the best option for your business. You can see how things work and learn the ropes yourself. If you want a more comprehensive look into what a property manager like Green Tree Property Management can do, you can schedule a free consultation with us!
