When it comes to real estate investments it all boils down to the property itself. Everything from the region to the nearest amenities impacts the return on investment, and it can be difficult to know where to begin. Below are a few things that deserve the investor’s attention.
Types of Property
The investor will need to determine the property that fits their investment strategy. Single-family, multi-family, condominiums, apartments, residential and commercial are terms that the investor needs to understand.
1. Single-family Homes
Also called single-detached dwellings or detached houses, single-family homes refer to a freestanding residential building and are usually occupied by a single household or family. These terms can refer to a cottage or a mansion, and everything in-between. One of the main advantages is that the entire space surrounding the building is private to the owner. Detached houses have no additional monthly fees, such as maintenance and parking, which can be found in other types of property, like condominiums. Also, if renovations or upgrades are required, this can be done at any time, without the permission of a building board or association.
2. Multi-family Residential
Otherwise known as a multi-dwelling unit, multi-family residential refers to multiple separate housing units contained within the same complex, whether it is a single building or several. Apartment buildings, townhouses, duplexes and semi-detached homes are some common examples.
3. Condominiums and Apartments
The difference between condominiums and apartments cannot be determined simply on sight, but rather through ownership.The condo owner also owns a share of the condo corporation, which in turn makes it so that he or she owns the surrounding land and common areas within the building.
Due to the increasing demand for the convenience and luxury that condo living offers, it is relatively easy to find tenants, especially in major cities. There is also minimum upkeep, and management and maintenance problems are taken care of by the condo corporation, making high-maintenance facilities, such as tennis courts and swimming pools, more convenient.
Apartment buildings are owned by single persons or a corporation and the units are rented out to many. Because many condo owners choose to rent out their unit for investment purposes when speaking of the two colloquially, a condo refers to the unit owned and the apartment refers to the unit rented.
4. Residential vs. Commercial
Residential buildings are primarily used as residences, while commercial buildings contain a retail unit or business component. A commercial building can also be mixed-use, with apartments and retail housed within the same complex.
New entry investors often prefer residential buildings, largely because they are more familiar with this type of building and the associated costs. Residential buildings also have a considerable pool of potential renters to draw from, and vacancy is much less of an issue than with commercial buildings. However, once a commercial unit is rented, an investor can look forward to longer leases, often ranging anywhere between five to ten years.
Commercial properties also encounter less competition on the market than residential, giving investors more opportunity to choose a property that makes sense to them, numbers-wise. Another benefit is that most commercial leases stipulate that the tenant is responsible for taxes, maintenance, and insurance, meaning that the investor is insulated against cost increases.