Real estate is an investment, but it’s important that you choose an investment that’s right for you. With so many different types of rental properties on the market, knowing which type of property you should invest in isn’t always an easy choice.
The best rental property might depend on any number of factors, including your local real estate market and your personal investment goals. Of course, the first step to choosing the right property is understanding your options.
Different Types of Rental Properties
Rental property categories
Most rental properties fall into six basic categories. Although one could argue that there are also countless sub-categories within these larger groups, these six types of rental properties are the most important to understand:
- Single-family homes: Perhaps the most self-explanatory category, single-family homes are dwellings that are detached from any surrounding buildings, and are designed to be occupied by one family.
- Small multi-family buildings: These small rental properties, which include duplex, triplex, and fourplex apartments, are detached homes similar to single-family residences, but include two to four separate rental units.
- Townhomes and row houses: These rental properties may be either single-family or multi-family units, but they differ from the above categories in that they include a shared entryway, yard, and/or connecting wall.
- Condominiums: What makes condominiums and cooperatives unique is that they are privately-owned units within a multi-tenant building or complex.
- Apartment buildings: Perhaps the most varied rental properties, apartments range from walk-ups to low-rise and high-rise buildings. They may contain as few as half a dozen rental units, or in the case of apartment complexes, may encompass hundreds of units in multiple buildings.
Not included in this list are luxury properties, which are typically aimed exclusively at wealthy renters, and vacation properties, which are intended only for short-term stays. Both of these types may fall into more than one of the aforementioned categories.
Single-family vs. multi-family rentals
Effectively investing in rental property requires a lot of research. This includes tracking market trends, weighing supply and demand, and carefully considering the location of the property.
Ultimately, the type of rental property you choose is just one consideration of many. For most investors who are relatively new to owning rental property, it comes down to a choice between single family and multi-family rental properties. Both types have their pros and cons.
Pros of single-family rental properties
In a nutshell, single-family homes are plentiful and easy to deal with, making them very approachable for first-time investors. The loans are fairly straightforward, maintenance is usually manageable, and landlords don’t typically have to worry about conflicts between tenants.
Cons of single-family rental properties
The main downside of single-family properties for investors is that the cost per unit is higher than in multi-unit rental properties. For landlords who want to increase their earnings with multiple properties, single-family homes offer less opportunity for growth than multi-family homes.
Pros of multi-family rental properties
Because you are essentially getting multiple rental units for the price of one property, you have higher potential ROI with a multi-family rental. And since you have more tenants, you’re also less vulnerable to the negative effects of vacancies.
Cons of multi-family rental properties
The largest downside of multi-family rental properties is that they cost more upfront. Generally speaking, the more units there are, the greater the initial investment you have to make. Multi-family properties also bring more hassles, take more maintenance, and require more of your time and energy.
Whether you’re planning on investing in your first rental property or are looking for the next right investment, a professional property management company can help. Contact us today to learn more.