All types of investment properties have their pros and cons. To decide which property best suits your needs and abilities as an investor, there are certain factors that you need to consider.
When “window shopping” for real estate investments, you might come across several property types that spark your interest. Below, we’ll go over the best types of investment properties that you can choose from, helping you make an informed decision.
Things to Consider When Buying an Investment Property
One of the objectives of buying an investment property is to earn passive income. If you are interested in buying investment property in Florida, check useful investment property market insights in Florida. To make sure regular earnings and low maintenance costs you should consider some important things before buying an investment property.
#1 Investment Property Location
Even if you buy the most luxurious vacation home, you won’t be able to turn it into a profitable investment if it’s situated somewhere people aren’t likely to visit. Similarly, while a fixer-upper might be a decent investment in a populated area where the competition is high (which means you can easily recover the renovation costs), it won’t do as well in areas with a less competitive real estate market. When buying an investment property, it’s best to prioritize the location, determine your goals, and research the market. We have a dedicated guide that shares these factors as well as tips for buying first investment property.
#2 Investment Property Maintenance Expenses
An investment property means recurring expenses. Whether you’re self-managing or hiring a property management firm to maintain your property for you, there are expenses that you need to consider when buying any piece of real estate. Additionally, there will be expenses that you won’t be able to anticipate, such as a broken HVAC and other common rental property repairs. You should also account for a significant budget for home improvement projects.
#3 Property Management Services
Do you want to be completely hands-on with your investment property? Some property owners like to take the helm by serving as landlords, but most investors prefer to use property management services to oversee the day-to-day activities, saving them time and energy. Keep in mind that managing certain investment property types may be easier with the help of a property management company. For example, a multi-family unit may require more attention, as you will have to deal with several tenants.
4 Best Types of Investment Properties You Can Buy
If you are a new investor with a limited budget, you need to research which type of investment property will fit you. Though all types of investment properties have pros and cons, you need to select one or multiple according to your budget and requirements. Let’s check the investment property types:
#1 Investment in Single-Family Homes
Single-family homes are independent units that house one family or a small group of individuals. This type of investment property is common in residential areas like Bal Harbour and Weston, and typically has one kitchen and unshared living spaces. In more urbanized areas where land is expensive, it can be more expensive than other property types. But for single-family homes in suburban areas, the price tends to be cheaper because of the highly competitive market.
Pros of Single-Family Homes
Many tenants prefer to live in single-family homes because they aren’t willing to share a living space with others. This means that the chances of attracting a wide pool of prospective tenants are higher. Additionally, you’ll find that a single-family home is much easier to maintain because of its relatively smaller size compared to multi-family properties and commercial buildings.
Cons of Single-Family Homes
Unless you’re managing multiple properties, the chances of earning substantial revenue from investing in one single-family home are slim. You’re more likely to see a higher return on investment (ROI) by investing in a multi-family residence such as a condominium or apartment.
#2 Investment in Multi-Family Residence
A multi-family residence is any residential building that houses more than one family. There are several types of multi-family residences, including duplexes, townhouses, apartment buildings, and condominiums. Multi-family residences are more common in highly populated areas and metropolitan cities such as St. Lucie County and Miami. Tenants living in multi-family properties share common areas such as swimming pools, gyms, and even rooftop lounges in some luxury condos.
Pros of Multi-Family Residences
If your tenant at a single-family property decides to up and leave, you’ll have to act quickly in finding a replacement tenant to avoid losing money on an unoccupied investment. However, with a multi-family property, losing one tenant still leaves you with several other tenants. Investing in this type of property offers a more stable flow of income.
Cons of Multi-Family Residences
While more tenants might mean more income, things can quickly turn bad when you let an irresponsible tenant slip through. Bad tenants can start trouble with other tenants living at the residence. It’s crucial to screen all tenants meticulously to ensure that they are qualified and responsible. Additionally, more units mean more appliances, and more appliances mean more broken items. You might be spending more on replacements for fridges, ovens, etc. than you initially planned.
#3 Investment in Commercial Properties
Commercial properties are pieces of real estate that are used for business. Instead of bedrooms and living rooms, you have workspaces and conference rooms. Commercial properties belong to a broad category of real estate investments — they include everything from small office spaces to multi-story corporate buildings.
Pros of Commercial Properties
The cost of rent for commercial properties is typically charged per square foot. Since they appeal to large-scale businesses and high-end renters, you could be seeing an attractive monthly income. While this type of property often costs more than a single-family home and a multi-family residence combined, the ROI could be well worth it.
Cons of Commercial Properties
Managing a commercial property may be too complicated for first-time investors. If you decide on investing in a commercial building, it’s best to hire a professional property manager who can navigate the specific requirements for leasing commercial spaces.
#4 Investment in Luxury Property Homes
Luxury properties are, as the name suggests, luxurious properties. Generally, luxury property homes are defined by their price tag which almost always doesn’t go below the seven-figure mark. Luxury homes can be found in upper-class neighborhoods and popular locations such as Miami Beach. Often, investing in luxury properties doesn’t mean you plan on renting them out — the property is instead treated as a permanent residence or a vacation home.
Certain types of real estate perform better than others, but ultimately, the success of your investment property depends on your investment goals and strategies. Whether you just want to earn passive income or become a multi-millionaire investor, there are plenty of opportunities in the real estate market that suit your specific goals. You can even use your second home as an investment property as well. but in that case, the mortgage of a second home versus an investment property is different.
You can always consult with Luxury Property Care to learn more about property investment opportunities, as well as how the real estate market in your desired location is doing. Get in touch with us today by calling (561) 944-2992 or filling out our contact form. Let us help you find and manage your next investment property.