Residential real estate investing is a lucrative investment strategy. Whether you are planning on renting out your investment property or holding it until it appreciates in value to sell it for a higher price, it does not matter. What matters is that it can be a great way to generate a great profit in real estate investing.
Naturally, the way you use, manage, and finance your investment property can make a huge impact on the profit you make. Therefore, at this point, we will present the ways in which residential real estate investing will secure your financial independence. So, continue reading!
Related: What Are the Major Incentives to Buy and Rent Residential Properties
What is residential real estate investing?
Residential real estate property is any property you buy and put on the market available for non-business purposes. In other words, residential real estate investing is investing in properties such as houses or apartments in which individuals or families live. Sometimes, real estate investments of this type have a service business component, such as assisted living facilities for seniors or full-service buildings for tenants who want a luxury experience. Leases usually run for 12 months, give or take six months on either side. This leads to a much more rapid adjustment to the housing market conditions than other types of real estate investments.
What are the different types of residential investment properties?
There are different types of residential real estate properties that you can choose to invest in. Sure enough, it depends on your finances. Still, it is OK to start small and then grow your real estate investment business gradually. So, do not let the idea of financing intimidate you, as financing is easy for residential investment properties.
Now, let us take a look at what types of properties you can go with for your residential real estate investing business:
Single-family homes
Single-family homes (often abbreviated as SFH) are homes built on a single lot, with no shared walls. Sometimes there’s a garage, attached or detached. This type of investment properties is great for beginner real estate investors. They do not require much in terms of property management. You can choose to start your investing business with this type of property, and then gradually grow your business.
Condominiums
Condominiums (or condos for short) are single units within a larger building or community. Condos share a wall or two with other units. They generally come with homeowners’ associations (HOAs), which require from residents to pay monthly or yearly dues. They are popular in urban, high-density areas, where there are many restaurants, shops, universities, and employment industries. Condos are especially beneficial if you take advantage of university and employment industry areas.
Multi-family homes
Multi-family homes are the least common type of residential buildings. They are essentially a home that has been turned into two or more housing rental units. They can be row house style or have multiple floors, and range in size from a duplex to a four-plex. Some multi-family homes have a separate entrance for each unit, while some share the main entrance. The distinction between multi-family units and condos is that the units can’t be purchased individually; there is one owner for the whole building.
Related: What to Do When a Tenant Has a Late Rent Payment
Second homes (vacations homes)
Second homes, also known as “vacation homes”, are residences typically found in recreation areas or resorts that serve as seasonal accommodations. These properties are owned in addition to a primary residence. They can also be anything from condominiums to townhouses or even single-family properties.
Vacation homes are great in terms of residential real estate investing. You can list them on short-term rental websites to help market them. One of the websites that you can list your rental property on is Airbnb.
Estimate your second home’s potential rental income on Airbnb by using our free Airbnb calculator.
What are the best investment strategies in residential real estate investing?
There are three main and very common investment strategies for residential properties:
Traditional rentals
Traditional rentals or long-term rentals are common in real estate investing. Many real estate investors prefer to go with this rental strategy due to the lower risk associated with it. It provides real estate investors with a stable rental income and positive cash flow. Moreover, the rent term is usually twelve months or more.
Airbnb rentals
Airbnb rentals are also common as one of the modern rental strategies. Basically, you list your real estate property and rent it to short-term visitors. It does not require much, though. You can either rent out a part of your own house, or you can buy a rental property for renting it out on Airbnb.
This rental strategy is safe for beginner investors in residential real estate investing.
Buy and hold real estate
Buy and hold is one of the best strategies a real estate investor could go with. You buy an investment property, hold onto it, and then sell it for a higher price. The good thing about this strategy is that you can still make money, while it’s appreciating. You can still rent it out and have a positive cash flow.
Related: The Top 15 Cities for Short-Term Rentals for Cap Rate
Why invest in residential real estate properties?
Real estate is a great investment option. It can generate an ongoing rental income source. It also appreciates over time and proves to be a good investment in the cash value of the property you buy. You may use it as a part of your overall strategy to begin building wealth. However, you need to be sure that you are ready to begin investing in real estate. Unlike other investments, you will need to spend money to maintain and care for your investment property in order for it to continue to provide a source of income. Real estate has a high tangible asset value. Therefore, there will always be value in your home. Other investments can leave you with little to no tangible asset value such as a stock which can dip to zero. Moreover, the homeowners insurance will protect your investment in real estate. So, be sure to get the best policy available so your asset is protected in the worst case scenario.
Real estate values will always increase over time
History continues to prove that the longer you hold onto your residential real estate properties, the more money you will make. The housing market has always recovered from past bubbles that caused home appreciation to slip. So, for those who held on to their investments during those uncertain times, prices have returned to normal, and appreciation is back on track.
An investment in real estate can also diversify your portfolio
If you’ve ever spoken to a financial planner about investing, then you are very well aware of the importance of diversification. When you diversify your investment portfolio, you spread out the risk. Residential real estate investing will always serve as a safe tangible asset to mitigate the risk in your investment portfolio. Many have amassed wealth by solely investing through different residential real estate investment strategies.
Last but not least, residential real estate investing comes with numerous tax benefits
You can get tax deductions on mortgage interest, negative cash flow, operating expenses and costs, property taxes, insurance and depreciation (even if the investment property gains in value), and other benefits. The end of the year is a very busy time for real estate because investors who seek to take advantage of the numerous tax benefits!
For more information and data on residential real estate investing in the US housing market, sign up for Mashvisor.