There are five categories for real estate investment property. We continue our discussion on the advantage and disadvantage each category presents hoping that the information will help those who are real estate investing as well as others who simply seek to learn more about real estate investment property.

Drawing from the list of real estate investment categories illustrated below, this time we will discuss number three on the list, multifamily properties.

1. Land speculation
2. Single-family homes
3. Multifamily properties
4. Commercial and industrial properties
5. Retail shops and shopping centers

Multifamily Properties

Any property that has more than one family unit is a multifamily property. The smallest would be a duplex (two units, often side by side or one on top of the other), and the largest, well, large rental complexes that consist of hundreds of apartments.

Advantages of Multifamily Property Investments

The most obvious is the investor will grow wealthy in the long run simply by holding onto the property and letting the renters pay off the mortgage. Even if there is no immediate cash flow, each time an owner collects a rent check it is virtually using other people’s money to pay the owner’s debt.

Moreover, multifamily properties serve a basic need, which limits the downside risk.

Regardless where you point to on a map, chances are good that there will be people, for any number of reasons, ready to rent. People have to live somewhere, and are prepared to pay for it.

Disadvantages of Multifamily Property Investments

The disadvantages mostly surround the management problems that come in dealing with tenants; apartments can be very management intensive.

Moreover, all rental apartments thrive or die because of the “other people’s money” scenario. When a rental market shifts to the point where there is a shortage of tenants, then owners can no longer be as selective about tenants, might experience higher vacancy, and might have to reduce rents. When there is a shortage of apartments, property owners can be more selective about the type of tenant they rent to, vacancy factors approach zero, and rents generally increase.

In other words, because multifamily property investors depend on renters to meet their debt service and other obligations to keep the property, they must prepare to flex with the market conditions regularly.

How to Buy Multifamily Properties

All income-producing properties have the advantage of being able to support debt from the income they produce, and therefore gives the investor an edge in the ultimate financing of the investment.

Unlike the situation with vacant property and single-family home financing in which the investor’s financial strength is the most important element lenders consider, all income properties are viewed from the point of view of the property first, the investor second. The lender will evaluate the property based on the income stream.

It is crucial, therefore, that the real estate investor represents the property to the lender with accurate income and expense data, and fair projections that might reveal a better end-result.

To achieve this, the prudent investor would be wise to invest in good real estate investment software; quality presentations made to lenders is simply smart business.

All real estate investment property separate into one of five categories. We want to continue our discussion on the advantage and disadvantage each category presents hoping that it might be helpful to the real estate investor and others seeking to learn about real estate investment property.

Drawing from the list of categories illustrated below, this time we want to look at number two on the list, single-family homes.

1. Land speculation
2. Single-family homes
3. Multifamily properties
4. Commercial and industrial properties
5. Retail shops and shopping centers

Single-Family Homes

Many real estate investors swear by this kind of property for real estate investing. Generally, to buy, fix up, and sell; to buy, maybe fix up, and rent; to buy, live in, slowly improve, and then sell.

The key with buying single-family homes as a real estate investment, of course, is to cover the carrying cost. Once the investor knows that there will be no cost to hold onto the property, time generally will ensure appreciation of value and an ultimate profit.

If the home has the flexibility of a future economic conversion to some other use, then that can be an added bonus to what may already be a good real estate investment. All of which depends on the investor’s due diligence having been carefully accomplished to ensure that the area is not in a decline and that there are no pending public or private works that can adversely affect the property in any way.

Advantages of Single-Family Home Investments

The biggest advantage to buying single-family homes is the fact that single-family sellers are often the most motivated of all sellers. For many different reasons (job transfer, desire for a smaller or larger home, personal or financial reasons) people need to sell a home.

When a real estate investor is able to find a truly motivated seller who is telling the truth and not hiding something like termites or a structural failure, the downside risk can be slight when investing in single-family homes.

Disadvantages of Single-Family Home Investments

The potential profit may not be very great if the investor is looking for quick growth. If the investor wants to build an income stream by buying and then renting out the homes, the investor will discover quickly that the property maintenance problems that come with owning several single-family homes may not warrant the purchase of this kind of rental property.

Depending upon your real estate investment experience, you may or may not be aware that there are five categories of real estate investment.

1. Land speculation
2. Single-family homes
3. Multifamily properties
4. Commercial and industrial properties
5. Retail shops and shopping centers

Over the next several articles, we will discuss the advantages and disadvantages each category presents, and hope to impart some knowledge about each that might be helpful to the real estate investor and others seeking to learn about real estate investment property.

Land Speculation

Purchasing vacant land that has the lowest basic value and turning it into a pyramid of values that includes everything from commercial sites to parks is what land speculation real estate investment is all about.

The key to land speculation is due diligence. Investors must determine the pattern of growth in the community and tie that together with the future infrastructure planned by the community. When circumstances are favorable, the advantage is that there can be little risk to this type of real estate investment if the real estate investors have the time and carrying ability.

The primary disadvantage of land speculation is that local governments commonly change plans for future development, or cancel future projects altogether. Moreover, long-term real estate investing in land can be difficult and expensive. Taxes can increase substantially; building restrictions or moratoriums can limit or prohibit reasonable development; utilities brought to the site may be charged against the property owner; and so on.

We will discuss single-family homes real estate investing next time; stay tuned.