Residential Properties

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residential-propertySimply put, residential property is property that is designed to be lived in. Residential property types include single-family homes, multifamily apartments, townhouses, student housing, senior housing, assisted living, condominiums and co-ops. It is by far the most common type of investment property in not only the US, but in the whole world.

The most common and basic type of residential investment property is the single-family home that the landlord rents out. The next most common and basic residential property type is multifamily residential such as a duplex, triplex, or an apartment block of 4 units or less. The line between the strict definition of multifamily and a duplex or triplex can be blurry. A duplex and a triplex are typically 2, or 3 homes respectively each with its own entrance, whereas a multifamily typically has a number of units with a shared entrance. A common duplex may be two homes side by side whereas a multifamily will more commonly be a number of apartments stacked on top of each other. Once a multifamily property has 5 or more units it is considered a commercial investment property.

For the purposes of this article, we are going to consider any property with 1-4 units to have the same basic characteristics – 5+ unit multifamily properties will be covered in the Commercial Properties section.

 

Single Family Homes

Pros

  • Most investors are inherently familiar with single-family homes simply because most people grew up in one, or have lived in one at some point in their lives
  • More single-family properties are available than any other investment property type. There is typically more choice and variety in residential properties, and they are typically easier to compare against other properties using simple metrics
  • Good tenants often can stay for years in the same single-family property, reducing turnover and vacancy loss
  • Single-family properties typically have the lowest cost of entry of any investment property
  • Single-family residences are a very liquid type of investment property allowing investors to sell more or less at will as people are constantly buying and selling single-family properties in any neighbourhood

Cons

  • A vacancy in a single-family home means no rental income until a new tenant is found
  • Single-family portfolios often do not scale as well as multifamily properties as each new property added to your portfolio adds more administrative burden

Multifamily

Pros

  • Multifamily investment properties are some of the most stable and consistent investments in real estate
  • Less vacancy risk and impact to monthly cash flow if one unit goes vacant
  • On average per unit, there is a lower maintenance cost for a property with 4 (or 2, or 3) units than 4 individual units due to common areas and economies of scale inherent in shared space

Cons

  • Higher turnover rate than single-family investment properties (although all units typically do not turn over at once)
  • Higher cost of entry compared to a single-family investment properties in same market
  • Can be slightly less quick to sell then a single-family home, however multifamily properties are almost always in great demand and this slower sales process is often negligible
  • Can be more challenging to finance than a single family home. Often require a full cash purchase.

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