Are rental properties a good investment? If you’re looking for a smart investment with potential for a sizable ROI, buying commercial property to rent out may be the right opportunity for you. In this series, we’ll be covering the basics of owning rental properties, and we’ll explain why learning how to invest in commercial rental properties could be the best business decision you ever make.
What is the difference between a single-family property and a multifamily property?
Real estate investors can see a return on investment regardless of what types of investment properties they purchase. Whether you own a multifamily or single-family property is a personal choice, and there are pros and cons for both. We’ll share some insights and comparison information to help you determine what the right real estate investment is for you.
Single-Family Rental Properties: Pros and Cons
A single-family rental property is a residence for one family, person or household. Single-family homes have residential zoning, so they may not be the right fit for you if you’re specifically interested in buying commercial property for rent. Here are some things to consider if you’d like to invest in single-family property:
- Single-family properties generate less income compared to multifamily properties, simply because there is only one to three units.
- Vacancy periods will be more costly because you’ll generate little to no monthly income depending on the number of units your property has.
- Because there are fewer tenants, property management and ongoing maintenance are less time-consuming with single-family properties.
- The upfront cost of a single-family property can be lower, depending on square footage and location.
- Real estate investors purchasing residential property to rent out will need a residential real estate loan, which is less complicated and often less expensive than a commercial real estate loan needed for multifamily properties.
Multifamily Rental Properties: Pros and Cons
Multifamily rental properties contain multiple units, each of which is a private residence for a person, family or household. Multifamily properties can be more complex to buy and manage, and if you’re wondering how to invest in rental property, you should understand the pros and cons of owning a multifamily property:
- More units bring in more income, which is why commercial rental properties are a good investment.
- Turnover and vacancy are less costly because other tenants will still generate monthly income for you.
- Property management can be time-consuming and expensive compared to single-family properties since there’s more tenants. Additionally, more units means more plumbing and appliances that can potentially break and require additional maintenance.
- Buying commercial property to rent out can be more expensive upfront, especially if you’re looking at a large property with many units.
- Multifamily properties have greater opportunities for appreciation since each time you make a repair to the building or a common area it forces real estate appreciation on each unit in the property. This makes expensive building repairs, such as a roof replacement, more cost-effective in a multifamily rental property.
- Investing in a multifamily property will often require a commercial real estate loan. In contrast with the relatively fixed terms of most residential loans, commercial real estate loans are more flexible and negotiable. Interest rates and repayment terms can vary greatly, so investors have many options to explore and find the right loan.
Are rental properties a good investment for YOU?
Whether you choose to invest in single-family or multifamily properties (or both!), you will have the opportunity to find success and generate income. If you have questions about the differences between single-family and multifamily investment properties, reach out to our team. Learn more about how to buy a rental property, and browse our listings to find commercial properties you can buy to rent out.
Learn More About Buying Commercial Properties to Rent Out in Our “Multifamily Basics” Series:
- Part 2: Are Rental Properties A Good Investment? Calculating ROI On Property Investments
- Part 3: How To Own An Apartment Building: Owning vs. Owning And Operating