The Basics of Residential Real Estate Investments

  • August 10, 2020
  • Blog
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A residential real estate property refers to a house that is bought by an investor which is then rented to tenants under an agreement. Such properties are developed in zones allocated for dwelling or living purposes and are different than commercial properties which are mainly for the generation of profit and revenue.

Types of Residential Real Estate

Residential real estate can be differentiated from commercial properties based on its types. While commercial real estate is generally occupied by corporations, residential properties are inhabited by families or individuals for long-term living. Residential real estate includes the following types of properties:

  • Single-family homes
  • Duplexes
  • Townhouses
  • Condominiums
  • Apartments
  • Co-ops
  • Detached houses

Investing in Residential Real Estate

Residential real estate is one of the most attractive investment types. While many people are interested in investing in stocks and bonds, residential real estate offers numerous benefits that are incomparable to other options. Purchasing and renting these properties provides investors with hands-on experience in the rental market which makes it easier for them to invest in other types of rental properties. Moreover, residential real estate offers benefits such as a steady monthly income, tax advantages, appreciation of the property in the long term, potential for increased cash flow due to inflation, as well as a secure future. Additionally, owning a residential property allows you to be your own boss. You will have complete autonomy over your investment strategy and be able to select tenants and also set a monthly rental charge yourself.

The Risks of Residential Real Estate

Like all investments, residential properties come with their own set of risks. One major downside is that residential real estate is not a liquid investment. Although other factors such as cash flow and appreciation are profitable, financial losses can increase in the case of mismanagement or due to unfavorable market conditions. Being a landlord also has disadvantages. Your tenants can contact you at all hours during a day to report things such as leaks, broken locks etc. In the case that you hire a manager, you will need to set aside finances to cover those costs as well.

Things to Consider When Buying a Residential Property

There are a number of factors that need to be considered to find a profitable residential rental property. Five of the most important factors include:

  • Neighborhood

The type of neighborhood in which you buy a property determines which tenants you will receive. For instance, a residential property near a university will lead to a greater number of students being potential tenants with a low demand during vacations and holidays.

  • Crime Rates

People will not want to rent a house in an area with a high crime rate. You can find out about criminal activities through data provided by libraries or local police.

  • Amenities

Most tenants will want a house near parks, public transport networks, restaurants etc.

  • Job Market

Houses in areas with a high number or employment opportunities will lead to a bigger tenant pool. Statistics about the job market can be found through the United States Bureau of Labor Statistics.

  • Average Rent Prices

The higher the rental rate in an area, the more profitable the investment will be. You will need to earn enough to cover mortgage payments, taxes etc. so it is crucial to research the region well enough.

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