Among all the economic industries today, real estate remains one of the best options to invest in. This is because there are plenty of ways for the money to grow, such as through rental income, appreciation, and profit generation. Aside from those opportunities, the investors can also enjoy the passive income, stable cash flow, and tax advantages that real estate can offer them.
That’s why it’s not unsurprising for you to be attracted to the world of real estate for your first business venture. Many aspiring entrepreneurs are drawn to the long-term investment opportunity that real estate offers not only for its passive profitability but also for its flexibility when it comes to management.
No manual clearly lays out the steps on how you can build your first rental property business to get it off the ground. But if there’s one thing that’s imperative to your success, it’s making the right decision regarding your choice of property—single or multifamily.
To make the decision-making easier for you, here is a quick rundown of the pros and cons of each option when it comes to financing, location, and maintenance. This way, you can weigh your options side by side to arrive at a well-informed decision for your first rental property business.
As a first-time rental property owner, it could be wise to start small by investing in a single-family dwelling since you’re only beginning to learn the ropes. If you were to start with one unit, then you won’t overwhelm yourself with the sheer amount of responsibilities that will weigh on your shoulders.
Of course, like all investments, you will need to finance your rental property by securing a loan. You can do this by applying for a conventional loan through your chosen financial institution. Another option is to use the equity in your current home to finance your new property through a home equity loan, home equity line of credit (HELOC), or a cash-out refinance.
Your target market for the rental property will dictate the potential location of your single-family dwelling. For instance, if you’re looking for families with small children to be your tenants, then you’re going to need a property near a school district and is situated in a safe neighborhood.
The costs of maintaining a single-family dwelling can appear more expensive than most multifamily apartments because you’re going to have to conduct maintenance in different locations compared to units situated side by side. But your tenants may have more care for their rented homes than those living in apartments.
If you’re determined to test your skills in the field of rental property management, it could bode well to invest in a multifamily apartment complex, especially because you’ll have higher income potential. But keep in mind that you’re going to be managing multiple rental units and tenants, which can be overwhelming for a first-timer.
Like the single-family dwelling, you’re going to need to secure funding for your multifamily complex before you can operate for business. Fortunately, you can seek help from the US Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) through loan guarantees.
You can apply for an FHA multifamily loan and use the funding to rehabilitate a distressed property, construct a new apartment complex, or acquire an existing property for your business. And because the government backs your loan, you can take advantage of the low-interest rates or reduced mortgage premiums that are offered.
For a multifamily complex, the location of your property is important because it will define the quality of the tenants you’re going to have, such as students or families if it’s near school districts. It’s also possible that you’re going to deal with high turnover rates because most tenants that rent apartments don’t stay in one place for a long time.
When it comes to maintaining a multifamily apartment, you’ll be spending less on per-unit costs because the materials or services can be applied to many units rather than a single-family dwelling. However, because you can experience a higher turnover rate combined with less care of the units, maintaining the apartment could become more expensive due to the frequency of repairs needed.
Of course, these aren’t the only factors that you should look at before you decide which rental property you’re going to invest in. But this could provide you with enough information to aid your research and eventually give a valuable contribution in making your final business decision.
Meta title:Single or Multifamily? Choosing Your First Rental Property
meta desc: The first step is always the hardest to make, but it’s also the most important. Learn about single and multifamily dwellings to choose what’s right for your rental property business.