To make any real estate transaction successful, there is a seemingly endless list of factors that you must consider. Yes, the history of the property and the current local market conditions play a role. But equally important is the property type itself.
As long-term investments, a single-family home and a multi-family property may perform differently despite being in the same area and targeting the same audience.
Current trends may put a lot of attention on one property type instead of another. A certain type may be underperforming in traditional transactions but could be a prime opportunity for wholesale real estate success. The list goes on and on.
Regardless, a few distinct property types consistently offer favorable returns on investment. This is true, provided you know exactly what you’re getting into ahead of a transaction.
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Single-Family Homes
If you had to pick one type of property that is often considered the “default type” in terms of real estate investment, single-family homes would likely be it.
Even though something like an apartment building can fit more people, single-family homes are virtually everywhere. They can also yield potentially significant returns if you know what you’re looking for and if factors like timing are right.
Let’s say that a major automobile manufacturer has plans to build a factory in a particular area that will open in five years, bringing hundreds of high-paying jobs. The time to start investing in that area would be now, while property is likely cheap. When the population booms after the factory opens, you can unload those homes and make a hefty profit. That’s just one example – rest assured, there are many more.
One of the reasons single-family homes are such a popular form of investment is their versatility. There are a number of different exit strategies you can explore depending on your own goals. Wholesale real estate, for example, allows you to negotiate with both a buyer and a seller to create a mutually beneficial situation for everyone involved – particularly yourself.
The option is also always to rehabilitate or “flip” a house before putting it back on the market. You buy it for one price, invest money into renovating and updating it to increase the value, and make a profit when it eventually sells. You can even use single-family homes to generate rental income if you’d like.
Multi-Unit Apartment Buildings
Similarly, we have multi-unit apartment buildings. As the name implies, you’re dealing with many instead of one family in an environment. Some apartment buildings can have hundreds or more tenants, depending on the size.
This is another relatively passive form of real estate investment. However, you will have certain responsibilities if you don’t hire a property management company and choose to do everything yourself. You need to maintain a safe, clean living environment for residents, and there could be major penalties for a failure to do so.
You’ll also need to work to keep vacancies as low as possible. Investing in multi-unit buildings involves creating the type of place people want to live in and screening tenants in advance to ensure you’re renting to people you can trust.
This is another one of those areas where conducting a thorough market analysis will be crucial. It can help ensure that you’re investing in an area where you’re most likely to find these types of people.
Again, if this sounds like a lot of effort, that’s because it is. This is why most people hire a property management company to handle everything on their behalf.
Yes, they’ll have to pay a monthly fee for their services. But they also get to sit back and watch the truly passive investment income roll in. There’s also always the option to sell the multi-unit apartment building to another investor if you choose.
Commercial Spaces
Finally, we arrive at the idea of commercial spaces. This is a catch-all term used to describe any space that is either rented by or leased to a business of some kind to make money.
You have something like an office building or even a strip mall on the one end of the spectrum. On the other end, commercial spaces only fit one type of business, like a gas station or restaurant.
Unless the business owner buys the property, they must consistently pay rent to stay open. This reliable level of income is one of the reasons why many investors flock to the commercial sector.
Here, there are a few additional things that you need to account for to help mitigate risk and guarantee investment success. As is true with residential real estate, location is really everything. You could have what is objectively a great piece of property that won’t do you any good if it’s located 40 minutes from the nearest potential customer.
But more than that, you must match the right location with the right business at the right time. Don’t rent to a business if there is no local market or the surrounding area is already saturated with competitors. Nobody wants to be the fifth gas station to open in a one-block area.
Choose wisely to help turn commercial real estate into a long-term, stable income for yourself.
If nothing else, property types like these help illustrate the diverse array of options that are available for real estate investors. You could enjoy massive success for your entire career and still never dip your toe in the waters of commercial spaces if you don’t want to.
By understanding the advantages and disadvantages of each type of property, you’ll be able to make the most informed investment decisions possible.
Any investment you make needs to be purpose-driven – tailored to your financial goals. So whether you’re a seasoned investor or new to the game, knowing the differences between these and other property types is the first step towards putting together the most profitable and diversified portfolio you can.
