Investment Types

Residential Income Investments have varying types, sizes and advantages. Technically, a single family home or condominium could be considered a residential income property. Practically speaking, we would consider larger buildings a better investment.

Multi-family residential property generally delivers the most stable returns, because no matter what the economic cycle, people always need a place to live. The result is that in normal markets, residential occupancy tends to stay reasonably high. Another factor contributing to the stability of residential property is that the loss of a single tenant has a minimal impact on the bottom line, whereas if you lose a tenant in any other type of property the negative effects can be much more significant.

The key to maximizing the success of a residential income investment is the economy of scale concept. Which dictates that the more units operating, the cheaper the cost to manage each individual unit. This often leads to higher returns on investments and can often be seen with the capitalization rate.

Single Family Homes

A Single Family Home represents a single-detached dwelling. A free-standing residential building that is legally permitted.

The Home can vary in size and amenities but it must meet legal requirements and be sold as a single assessor’s parcel number.

Condominiums (Condos)

A Condominium (Condo) is a parcel of real property that is a unit or portion of a building or complex of buildings containing a number of individually owned apartments or houses.

The system of ownership by which condominiums operate, in which owners have full title to the individual apartment or house and an undivided interest in the shared parts of the property.

Types of Condominiums include:

• High-Rise Condominium
• Low-Rise Condominium

Cooperative (Co-op)

A Cooperative (Co-op) is a type of residence where the buyer owns shares in the corporation that owns the building and has the right to live in a specific unit but does not own the title to real property.

Finance loans for a co-op is difficult since the borrower only owns shares in the co-op, not the unit. If the lender ended up foreclosing on the borrower, they would only receive the shares in the co-op, not the actual property.

Duplex (2 units)

A duplex house is a dwelling having apartments with separate entrances for two households. This includes two-story houses having a complete apartment on each floor and also side-by-side apartments on a single lot that share a common wall.

A duplex may also refer to two homes on a single lot with separate, legally permitted addresses.

Triplex (3 units)

A Triplex refers to a parcel of Real Property consisting of three units on the same lot. The units may be attached or detached but generally have separate street address numbers.

Quadriplex (4 units)

A free-standing building having four dwelling units under one roof or on the same parcel of land.

Normally a quadriplex is a two-story complex with one dwelling unit located on top of and adjacent to another. Other configurations are possible including a one story structure with all four units simply being adjacent to each other.

Apartment Building (5+ units)

An Apartment Building is a structure of group of structures with individual residential units. Unlike a condominium building, an Apartment Building is generally owned and controlled by one entity while the individual units are leased to qualified tenants.

This is the primary investment class when referring to Residential Income Investments. Residential buildings with 5 or more units also qualify for commercial financing which has it’s own unique advantages.

Land Development

This represents a parcel of real property that is not currently a legally permitted, operating structure. In most cases, the use of land is regulated by local governments. It’s important to do a developmental study to understand what can be built on the property.