Mar. 22, 2008 - Popular Types of Real Estate Investments

There are many different types of investment properties available, and each class of property has different pros and cons for a real estate investor. In order to determine what type of property is best for you, it is helpful to understand the different benefits and drawbacks of the major property types.

The following list will try to identify the major pros and cons that are commonly associated with the ownership of a particular property type. It should be noted that each property is unique, and since these are generalizations they may not apply to your particular property, but can be helpful as a basis for understanding the general differences.

Single Family Homes

Pros: Investor owned single family homes are probably the most commonly held real estate investment. The benefit of owning a single family home is that the value of the home is relatively easy to establish, lower loan rates are available, vacancy rates are easy to factor, and property management is relatively simple and professional services are widely available.

Cons: In many areas, single family homes are priced at a substantial premium to multifamily complexes due to what is known as the homeownership premium. Individuals are often willing to pay much more than the equivalent rental rates in order to enjoy the benefits of homeownership.

Multifamily Apartments:

Pros: Multifamily apartments generally offer higher ratio of income to price than single family homes. Depending on the number of units and their condition they will require a varying amount of management, which can easily be outsourced to professional property management companies.

Cons: In many areas multifamily apartments have not appreciated as much as single family homes. However, their prices tend to be more stable and may be less affected by a market downturn than single family homes. Loan rates for properties with 5 or more units can be quite a bit higher than 1-4 unit properties.

Commercial Retail / Office

Pros: Commercial retail and office space is another popular type of real estate investment. The benefits of commercial real estate include a generally lower turnover rate for tenants and long term leass. In many cases tenants will have NNN or Triple Net leases and will be responsible for interior building maintenance and a percentage of the property taxes.

Cons: In most cases, commercial real estate investments will require a larger down payment than in residential real estate. The interest rates on loans will also tend to be higher and may have a shorter amortization period. When a tenant vacates a commercial space, it may take longer to find a new tenant than it would in residential.