Investment Properties: Deciding on a Property Type

Investment Properties: Deciding on a Property Type

Here at MomVesting, we're introducing a huge new series about non-traditional investments. These non-trads cover everything from investing in others' business ventures to investing in blogging to purchasing investment properties. We hope you'll join us as we move along in the new large investment series on Mondays!

Moving forward, we're covering the investment properties mini-series first, in which we'll talk about the ins and outs of financing, landlord tips, renting to great tenants and other must-know details. Last time we talked about how to decide to become a landlord. In this second investment properties post, let's tackle how you decide on a property type in which to invest.

Deciding on a Property Type

Once you know that you're in the right business, it's time to decide which type of property is the best fit for your life. With single family homes, duplexes, multi-plexes and apartment complexes making up the vast majority of residence investment property types, it can seem overwhelming to choose the best type for your lifestyle. Have no fear: deciphering the property types is actually pretty simple. Let's take a look.

  • Single Family Homes: The SFH (Single Family Home) is one of the simpler types of investment properties. SFHs only come with the demands and repairs needed for one central renter or rental family. This means that no matter how many people are residing in the home, one or two people are generally responsible for contacting the landlord – meaning you'll have only one request for repairs, one rental check, and one potential tenant loss to deal with at a time.
  • Duplexes: The duplex is also rather simple. It is typically a single family home split into two separate apartments. Two tenants means only two separate rental properties to deal with, all with the bonus of being under one roof.
  • Multi-plexes: Typically a single family house split into many separate apartments, multi-plexes can be a little more complicated. The more tenants you have, the more potential trouble you may have with late rental checks, multiple requests for repairs or many tenants leaving at one time.
  • Apartment Buildings: As you move up the chain of multiple units, more opportunities for complications can occur. Just like with multi-plexes, hosting multiple tenants in any one building can present trouble around any corner. In addition, however, maintenance on common areas can become headaches as well, especially when considering high-end features like pools and gyms. Finding the right tenants and property manager can help keep your life less complicated.

Now that you know what type of properties are available, it's important to take your time and decide which property works best for your lifestyle. Many first-time investors decide to purchase a single family home or a duplex to get their feet wet, but if you prefer the challenge – and potential earnings – that come with an apartment building, it is possible to purchase a multi-plex or apartment building.

The important thing to remember is that the more tenants you have, the more time, money and resources you'll need to have both before and after you purchase the property. Also, on the finance end, the differences between owning a single family home or duplex and a multiple-tenant building can be complex. For multiple-tenant buildings like multi-plexes and apartment complexes, you will have to provide a lot of information, including but not limited to extensive proof of personal finances, info about your business finances and a business model.

As we move along in the series, we'll focus much more on the simple investments like the single family home or duplex. These are better examples for the beginning investor, and most people contemplating a real estate investment would choose to invest in SFHs or duplexes first. So follow along with us as we tackle more on real estate investments in the weeks to come!

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AverageJoe's picture

AverageJoe wrote:

Tue, 10/02/2012 - 19:44 Comment #: 1

I love the idea of an apartment building, but you're right...there's tons of risk and time involved. Finding that right property manager is probably step one and THEN finding the building is step two.

Christa Palm's picture

Christa Palm wrote:

Tue, 10/02/2012 - 20:57 Comment #: 2

True, Joe: unless you're super-handy, hiring a property manager first is probably a good idea!

Don's picture

Don wrote:

Fri, 10/05/2012 - 04:23 Comment #: 3

Sounds like an interesting series! I've been thinking of taking the real estate rental property plunge myself :)

Christa Palm's picture

Christa Palm wrote:

Mon, 10/08/2012 - 16:46 Comment #: 4

Good luck, Don! Now may be a great time to buy with interest rates and housing prices at such low rates!