We're all familiar with the saying "what you see is what you get," but in real estate, this mantra could be a little tricky. Investing in real estate has many advantages, and that's generally all you hear about, but there are some downsides to investing too. The best thing to do—especially when you're thinking of investing in personal properties—is to weigh out all of the pros and cons before making a final decision.
Single Family Homes
Investing in a single family home is a great way to make a passive income. Depending on the time of year, you can really strike a good deal buying, renting out, or reselling these homes. However, there's more to investing in a single family home than just searching for a great property at a fair price.
Single-Family Home Pros
- Stability - One of the pros to renting out a single-family home is dealing with a long lease. Some property managers or landlords prefer short-term leases, but longer leases offer more stability. Another good point to remember here is that the ROI on longer leases increase over time. It also helps to learn tips for retaining your tenants to put these properties to their best use.
- More Savings - Chances are you're looking to invest in a property to make money and save money, right? Well, you'll be happy to know that the property taxes on a single family home are much lower than taxes on other kinds of properties. This kind of structure is taxed differently than, say, an apartment building, and the rate is lower.
- Ditch it and Flip it - If you just want the property for a little while, and then you want to resell it, a single family home is a great investment. These purchases generally hold their value, and if you do enough upgrades, you're sure to make money.
Single-Family Home Cons
- No Renters, No Money - This is a con for most personal properties, but when it comes to single-family homes, a lack of renters yields a lower ROI. This is especially bad news for those who are relying on their investments for income.
- Extra Fees - If you invest in a property that is part of the HOA (Home Owner's Association), look forward to forking up an extra bit of cash. The fees are monthly, so the amount you're paying each month can really add up.
Multi-family homes are found in just about every state and nearly every large city, so it's no wonder they're such an attractive investment option. However, as with single-family homes, these properties aren't effortless money makers; there are both pros and cons to investing in them.
Multi-Family Home Pros
- More Money - If you're looking to rake in more cash monthly, a multi-family home may be exactly the type of investment you need. You'll automatically make twice of what you would with a single-family home, and you'll make even more if you hammer a few nails, change a few tiles and set in some attractive lighting. Renovating a multi-family home can really increase your ROI.
- Easier to Buy - Yes, you read that right. Buying a multi-family home is actually easier (in most cases) than purchasing a single-family home. This is because purchasing a single-family home is very much reliant on your credit score and history, while multi-family homes are more focused your ability to repay the mortgage.
- One Property, One Collection - You don't have to go to multiple properties to collect your monthly payments, and you don't have to maintain several properties. Bonus!
Multi-Family Home Cons
- Refereeing - In a situation where your tenants don't get along, you'll have to get involved, preferably before it gets to the Jerry Springer-stage or you find yourself on People's Court. This one reason why it's so important to meet your tenants face to face.
- Turnover - Due to the unforeseen disaster mentioned above, turnover can be an issue.
- As you can see from the above points, there are many real benefits, and a few downfalls, to investing in these properties. By carefully considering each pro and con, property value and the market, you'll land the best property and begin collecting in no time.