Investment Property Types
- Single family, condos
- Multi-family, apartment buildings
- Mixed usage
- Fixer uppers
- Second home or vacation home as an investment
Condo - Investing in a condo can be a great way for an investor to get started investing in real estate. If the building has professional management, the landlord does not have to worry about handling many of the maintenance issues associate with a single family or multi family. Often times, the condo fee covers the utilities. When calculating the returns on a condominium investment, one normally has to include the mortgage, taxes, condo fees and any other insurance on the unit itself. Condos can sometimes be challenging to finance in times of tight lending guidelines.
Single Family - A single family can be a great investment. Most often the tenants pay all the utilities so the rent covers just the debt service, taxes, insurance, maintenance and other expenses. Single families tend to be easier to finance during times of tight lending guidelines.
Multifamily - Multifamily houses can be similar to single family houses, but they pose entirely different risks and benefits. Some of the benefits are:
- You should gain economies of scale for each additional unit.
- The numbers can work well, especially if you owner occupy and rent out the remaining units.
- Highest and best use often times results in a condo conversion.
Apartment Building - Similar to multifamily, but usually larger. An apartment building usually requires a commercial loan that will also require additional capital. At this point, most investors are professional and are in the business of real estate investment. The banks will usually look at the operating profitability of the building itself rather than the qualifications of the borrower.
Condo Conversion - The legal conversion of a multi family house or apartment building or other multi-tenants property into individually owned units. It is usually a case of the value of the sum of the parts is greater than the value of the whole. There are many laws that need to be followed including landlord/tenant, zoning, building codes and others. Having a great team around you is vital.
Mixed Use - Can be retail with apartments. This can sometimes be optimal for a business owner who wants to utilize the commercial space and get income from the apartments. This can also be a good way to hedge against fluctuations in one sector versus another. If the commercial market is weak, the residential market could still be strong and vice versa.