While establishing your rental properties plan, you might want to consider the type of properties you’re willing to accept. Are you looking for apartment buildings with multiple units, commercial properties, or maybe single-family homes? Each type of rental property presents its own unique risks and rewards. The risk and reward from each type of property will vary from one area to the next. What’s considered to be a safe bet in one neighborhood but be a high risk in another.
The most common types of rental properties include:
- Multi-Unit Apartment Buildings
- Single-Family Homes
- Commercial Properties
Multi-unit apartment buildings present a high degree of risk. The more tenants you have, the more problems you’ll encounter. If you meet a landlord who says that owning multi-unit apartment buildings is fun or easy, run. Run far away. Regardless of the area or the tenants, multi-unit apartment buildings come with multiple inherent risks. Most towns and cities have rules and regulations that pertain to rental properties of two or more units. The same rules and regulations might not apply to single-family homes or townhouses.
Single-family homes are sometimes considered to be the gold standard of rental properties. The tenant turnover rate is much lower than multi-unit apartment buildings. You only have to deal with renting one single unit. In most areas the value of a single-family home will increase much faster than the value of other types of rental properties. Tenants searching for single-family homes will usually have higher incomes than those looking for housing in multi-unit apartment buildings.
Condos are a special breed of housing. Long before you sign on the dotted line to purchase a condo you’d like to rent, learn everything you can about the condo association. Many condo agreements clearly state that you can’t sublease the unit to another party without consent of the condo association. As the potential condo owner, you’ll probably need to be approved by the condo association. You can’t simply pass that approval onto a tenant. If subleasing the condo is allowed, chances are the renter will need to be approved by the condo association. Seriously think twice before considering a condo as rental property.
Townhouses are two or more attached single-family homes. While most townhouses are two single-family units, some have more than two units. If you’re considering adding a townhouse to your portfolio of rental properties, learn all you can about the townhouse homeowners association. If there is no association, visit the registry of deeds in your county or parish. Find the deed to the property you’re interested in. There may be rules on what you can and can’t do with the townhouse. The rules are called restrictive covenants. There may be a restriction on subleasing the townhouse without prior consent of the homeowners association.
Commercial rental properties come with an inherent risk not associated with any other type of rental units. The rental value may be destroyed when another commercial property pops up nearby. Many urban areas are in a constant state of flux. It seems like the “retail area” is constantly shifting. A new strip mall might open and instantly become the place to be. Shoppers will quickly abandon older stores and flock to the ones at the new strip mall. Two years later another area rapidly develops and kills the strip mall almost overnight. In less than a year your commercial property shifts from being in the hot spot to the dead zone. It happens all across the country with the sole exception of major metropolitan areas where commercial land is fully developed. In those areas you’ll see very little changes in the commercial landscape.