Types of Real Estate

The types of real estate that one can possibly invest in varies greatly.  Each type carries its own set of benefits and problems but I firmly believe that you must begin small before building up.  Below I will describe each set of residential properties then further below I will explain what types of properties I believe are best for an initial investment.  This post will not go over industrial or agricultural real estate.

Real Estate Properties

Single Family Unit: In simpler terms this is a common house.  Most homes consist of 2-5 room with 1-3 bathrooms.  Some contain a dining room in addition to a living room and possibly an office.  A standard and the most common of purchases.

Condominium:  A condo is an individual property, usually styled as an apartment, within a larger community complex.  When you purchase a condo you purchase your individual apartment that is usually among many other apartments.  The condo community usually comes with other communal benefits that can include a pool, gym, or other recreation rooms.  Once the condo is purchased there is a continual association fee that must be paid every month.  This fee is what helps keep the condo community areas clean and in working order.

Multiple Housing Unit (Duplex/Triplex etc.): This type of property consists of units, or apartments, in a single building.  The building is usually a single structure that hold 2-4 different apartments.  This property can also be multiple stories.  These types of properties have to be in the appropriate zoning to be built.  They may not always be allowed in the same zones as the single family units.

Residential Income (5-11 Units):  This is a larger style property that contains 5 units or greater.  In my opinion this can almost be considered a commercial building due to the amount of units.  These building can provide the most cash flow although they can also cause the most problems.

For my initial purchase I chose a multiple housing unit, more specifically a duplex.  Why did I choose a duplex?  Truthfully there were various reasons.  Some were my reasons and others were dictated by the market.  Let me show you my  thought process.

My Reasoning

– Single V. Multiple:  My initial idea was to purchase a single family home and to rent it out to a single family.  A single family home has the benefit that it usually is more desirable to potential renters and that you will not encounter any problems regarding tenant disagreements.

After studying the situation further I realized the positives for a multiple housing unit far outweighed the negatives.  A multiple housing unit in the same neighborhood as single family unit often does not cost much more than the single family unit.  For example, the property that I chose was directly across the street from a very well kept single family unit.  When I checked their respective estimates on Zillow I realized that the duplex I was choosing was only 20K more.  In addition, the combined rent possible from a duplex far exceeded the possible rent from a single family home.  The rent coming in was nearly double.  These reasons made the multiple housing unit my preferred choice.

–  Duplex V. Triplex/Quad:  Initially I made a very hard push to try to find a triplex or quad that I could purchase.  It was very difficult to find reasonable priced properties that were less than my loan limit of $175,000.  When I did find a property and made an offer my offers were always rejected.  I ended up choosing a duplex essentially because it was what the market dictated.  At that time the real estate market was slowly coming out of its bottom point after the 2008 recession.  Prices were still low but were quickly rising.  It became a hotbed of investor activity.  Big time investors were coming in and purchasing real estate at low prices with straight cash.  Sellers usually prefer cash offers because there is less hassle involved.  Big time investors like to focus on 3-4 unit properties and that is why I was squeezed out.  I had to find a duplex to get some sort of profit out of my property.

Final Conclusion

It would be best to find a multiple housing unit with 2-4 units to break into real estate investing.  A single family home can also work but it will not render much workable cash flow.  A larger unit with 10 units could cause a beginner to feel overwhelmed due to inexperience.  Begin small, gain some experience, and work up from there.