Investing in residential real estate has long been a popular strategy for building wealth and diversifying investment portfolios. However, the term “residential real estate” is broad and includes different types of properties. In this article, we explore common residential property types that attract investors in different parts of the world.
| Please note, that terminology and specifics may differ from country to country, so please use this article for a general understanding of the types of residential real estate, but also take into account the local characteristics of a specific region. After reading the material, you will understand that there is no ideal type of real estate. No type will be a magic pill anywhere in the world and guarantee you 100% success. Each type has its own unique characteristics, advantages, and challenges, and which type to choose depends on many factors. |
1. Single-family residences (SFRs)
Single-family residences (SFRs) are standalone homes designed to accommodate a single household. These detached buildings may be villas, cottages, lodges, mansions, etc. An SFR usually has a private yard and garage and features like a summer kitchen, shed, or swimming pool.
Interestingly, in some countries demand for single-family homes among tenants has risen after the COVID-19 pandemic and the growing popularity of remote work. People who no longer need to rent an apartment in the city center close to their workplace decided to relocate their families to the countryside, enjoying nature and village lifestyle.
Single-family residences are fit for tenants who value privacy and independence. Usually, tenants carefully search for such properties, but once found, they prefer to stay in for a long time (of course, if it’s not a beach house you rent out for weddings or holidays).
However, there are also disadvantages. Since single-family homes are standalone and independent, they are not part of homeowners associations. It means that all the property management and maintenance fall on the shoulders of the owner, tenants, or property management company. It is not always convenient and sometimes may be quite stressful and expensive.
2. Planned unit developments (PUDs)
Often single-family homes might be confused with Planned unit developments (PUDs), and although visually it may seem that these are the same, the difference is still significant. PUDs are communities of detached single-family residences, townhouses, or even condos with shared common spaces and amenities, such as swimming pools, tennis courts, or recreational areas. These amenities are private and available only to community members and their guests, which makes PUDs a popular choice among tenants.
Usually, PUDs are gated communities, where homeowners belong to a homeowners association (HOA) and are obligated to pay regular dues and special assessments. These fees are used to manage and maintain common areas. It means that property owners or tenants don’t need to think about snow removal, fallen trees, or pool cleaning.
Owning a PUD means following the community rules, which may be quite strict and might not always fit your plans. If by any chance you are not familiar with these specific rules before the purchase, they could become a huge surprise and ruin some of your plans.
For example, not every community allows you to rent out properly as you wish. You might be able to rent it out on a long-term basis but be restricted to listing your home on Airbnb for short-term rent. Also, the community might have limitations on property customization; it means that you will not be able to transform your garage into a game room and park your car outside.
Sounds overregulated? Maybe. However, these rules might also benefit both you and your tenants. Your neighbors will need to follow these rules as well, and the neighbor on your left will not be allowed to store rusty boats or construction debris in his yard, which by the way, can reduce the value of your property if you decide to sell. Also, the neighbor on your right will not wake up your tenants at 6 am on Saturday with the noise of his grass-cutter, because if he does, he will be obligated to pay penalties. Tranquility and comfort are something that tenants are looking for!
3. Condos (apartments)
Condominiums, or condos, are another popular option for investors. Unlike standalone homes, condos are part of a larger building or complex, with individual units owned by different parties, while common elements like pools, and elevators are owned jointly.
In some countries, the term “condo” is not in common use, instead, people use the well-known term "apartment”. If not taking into account luxury buildings with high-end amenities, one of the key benefits of a condo is its affordability combined with convenience – exactly what some groups of tenants value the most.
Condominium buildings are typically built in desirable urban areas with a good transport link and are attractive for tenants who are looking for a simple and comfortable lifestyle, where amenities like a pool, gym, or even hair salon are nearby. Shopping centers, grocery stores, and cafes are within a few minutes drive away.
Some projects even offer paid services such as laundry services, dog walking, or room cleaning. That’s why a condo may be a perfect choice for busy tenants, who value every minute of their time.
As with any type of real estate, investment in a condo has its pros and cons. For some investors, a condo is a perfect choice since all the maintenance of the building’s exterior and common elements is handled by an HOA. For foreign real estate investors, less intensive property management can be crucial.
However, comfort costs money, and condos, just like PUDs, come with ongoing costs in the form of regular HOA fees and sometimes special assessments – they can be quite pricey and definitely need to be taken into account once you analyze your investment.
And just like in PUDs, you need to follow HOA rules which can be quite strict and go against your investment plans.
In general, condos can be a very good choice due to their affordability, location desirability, and easy maintenance.
4. Multifamily homes
Multifamily properties (i.e., duplexes, triplexes, and apartment buildings) are popular among experienced investors looking to scale their real estate portfolios. These properties provide multiple rental units under a single roof, allowing for diversified income streams. The key advantage of multifamily properties is that they spread risk: If one unit is vacant, the others can still generate income, reducing the overall impact on cash flow.
Multifamily properties generally offer higher cash flow. However, they also come with higher upfront costs and require more complex property management, as there are multiple tenants to manage. Financing for multifamily properties can also differ from country to country, but generally, it’s more strict, as in many cases they are treated as commercial properties.
Additionally, the cost to buy a multifamily home, whether it’s a whole price or just a downpayment, is usually significantly higher than the cost to acquire a single-family home or apartment. Multifamilies are therefore unaffordable to a certain number of investors
In some markets, the competition for multifamily properties is intense. Some wealthy investors buy multifamily properties for cash. Cash offers are more favorable to sellers, but can be a deal breaker for small investors who are in the middle of the mortgage process.
Another significant challenge is property management. Handling multiple units demands substantial time, attention, and expertise, making it a considerable responsibility.
5. Manufactured homes
Manufactured homes are prefabricated structures that are built off-site and then transported to a plot of land. These properties offer a more affordable entry point for investors, with lower acquisition costs compared to single-family homes.
As with any property type, manufactured homes come with their pros and cons.
For example, if local laws and regulations allow, manufactured homes can be installed in unique destinations that attract tourists. In these places, for certain reasons, it is very difficult to build a classic detached residence. If you get all the permits and have a chance to install a manufactured home in such a unique location, then you have all the chances to make your property a top choice among tourists who are looking for exclusive short-term rentals. For example, it can be a cabin lost in the mountains.
Also, if you own or rent a large piece of land and regulations allow, you may create a community by installing several manufactured homes and some amenities, like a swimming pool, barbeque area, or children's playground.
Although a manufactured home seems like a straightforward investment, there are many pitfalls: higher depreciation rates, possible issues with financing, and future selling.
Also, in some countries zoning laws may be quite strict. To fixture your home in a certain place and rent it out, you need to overcome mind-blowing bureaucracy to receive all permits, while a place that is allowed to install the home might not meet the demand from tenants or your investment goals.
Conclusion
Awareness is important! Before choosing an exact property you would like to invest in, you should consider multiple factors. Will it be a cash purchase or a mortgage? And if the latter, what amount of downpayment can you afford and what are the lender requirements for financing this type of property? Also, are you ready to invest money in renovations and invest time in complicated property management? What are zoning laws and rental regulations in the region you invest in, and do they match your plans?
In our article, we reviewed only a few pros and cons of every property type, while in the real world – there are many more. These and many other factors need to be taken into account if you want to get the most out of your investment. Research and analyze it, and your investments will benefit you.
It’s very important to consult local professionals like realtors, lawyers, and property management companies to understand what fits your needs and what are the regulations.
Stay tuned for future articles to know more about the properties we didn’t review today: mixed-use, condotels, or unique properties like houseboats.
For your easy real estate investments, review NOVA. We carefully handpick our properties, so they provide steady property appreciation and regular rental dividends. No need to worry about property management or paperwork. Start now → 💚
Follow NOVA on Facebook and Telegram to catch the latest real estate trends.
