The Many Types of Rental Properties

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If you’re thinking of investing in rental property but can’t decide which option is best, we’re here to assist. We’ve analyzed popular property types to give you the information you need for an informed choice. Here’s what you should know about the pros and cons of different rental property types.

  1. Single-family homes:

A single-family home is a standalone dwelling with its own entrance and exit. It’s the typical image that comes to mind when thinking of a house. These properties are often chosen by renters with families and established careers. Investing in a single-family rental is affordable compared to other residential property types, making it a good entry point for budding real estate investors. If the property is in a desirable location, it can be used as a short-term vacation rental. However, ensuring occupancy and property maintenance can be challenging since revenue is generated only when occupied.

  1. Multi-family homes:

A multi-family home is a single structure divided into multiple dwellings, usually attracting younger renters who are starting their careers.

  • Duplex: A duplex is a building split into two separate homes, sometimes side-by-side or stacked, with a shared wall.
  • Triplex: A triplex is divided into three separate rental units, usually sharing one or two walls.
  • Fourplex: A fourplex is sectioned into four separate homes, which could be side-by-side or stacked.
  • Condominium: A condominium or condo can be a standalone building or part of a complex, with several independently owned apartments. Unlike apartment buildings, condos are usually owned by individuals and may have homeowner’s associations (HOA) that enforce rules and collect fees. Condos in prime locations can make excellent vacation homes.
  • Townhouse: A townhouse is a multi-family house that resembles a single-family house. The owner has rights to the structure and the land it sits on, but townhouses share at least one common wall with another unit, making them multi-family properties.

Owning a multi-family home has several benefits, including convenience, cash flow, and tax deductions. One unique advantage is the possibility of living in one of the rental units, simplifying property management. The rental income from other units can help cover the mortgage and maintenance costs. However, purchasing and maintaining these properties can be expensive, especially for duplexes, triplexes, or fourplexes. Other types of multi-family properties like condos and townhouses can be more affordable when purchased as individual units, but their maintenance costs can be high due to shared structures.

  1. Commercial properties:

Commercial property refers to any property used for business activities, including office spaces, industrial spaces, retail, and apartment buildings. In this article, we’ll focus on two types of apartment buildings and workforce housing.

  • Low-rise apartment complex: Low-rise apartments are usually 3 to 4 stories high with 50 to 400 rental units, also known as “garden apartments.” They may not have elevators and parking, depending on the real estate market.
  • High-rise apartment building: High-rise buildings usually have more than seven stories and contain over 100 rental units. Located in cities, they provide residents with easy access to amenities and have elevators.
  • Workforce housing: Workforce housing is defined as housing that is affordable for households earning 60-120% of an area’s median income. It is intended for middle-income earners who cannot qualify for traditional housing subsidies but can’t afford to buy their own homes. This housing type benefits both residents and investors and qualifies for tax credits that other commercial properties do not.

Commercial properties can be reliable investments due to their high market value, offering the potential for significant returns. However, they can be expensive to purchase and maintain due to higher market values, resulting in high property taxes, insurance premiums, and maintenance costs. Managing these properties can also be challenging due to the number of tenants.

  1. Vacation homes:

A vacation or short-term rental refers to a furnished property temporarily rented to tourists or vacationers. While these rentals can be profitable, they also come with risks. Investing in a vacation rental offers the potential for higher income, personal use of the property, tax benefits, and resilience during economic downturns. However, managing these properties can be challenging due to high tenant turnover and inconsistent income between peak and off-peak seasons. Additionally, the property owner is responsible for utilities, maintenance, and cleaning between tenants.

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