Investors widely hold real estate to be among the best investments that you can make. Real estate will bring you consistent and predictable cash flow, it will appreciate over time, and it allows you to grow equity by reducing your debt (the initial mortgage amount).
There’s also something to be said for investing in something tangible into which you can put real physical work. If you’ve been active in Dallas property management for a while, you’re probably nodding your head in agreement.If you’re new, you’re probably wondering where to begin. That’s an excellent question! There are many types of property out there, so what’s the best place to start for a new real estate investor looking to grow their portfolio?
Let’s Talk Property Types
To understand where to start when growing your portfolio, it helps to begin by analyzing the different types of properties available to investors—and their various levels of risk. As an expert Dallas property management company, we can provide some guidance here based on what has worked for investors in the Dallas area.
A brief synopsis of common types of residential real estate is helpful before diving into what the best options might be. Residential real estate includes new and resale homes, and is an umbrella term for a few different types of properties.
- Single-family homes are homes built on a single lot, without any shared walls. This type of property is the most common type of residential real estate in general.
- Condominiums (often known as condos) are single units within a larger building. Condos share one or more walls with other units and generally share common areas such as hallways between units. This type of property often comes with a Homeowner’s Association or HOA.
- Townhouses are a hybrid between a condo and a single-family home. This type of property is often multiple stories, with one or two shared walls. They usually have a small yard space or rooftop deck. This type of property is generally larger than a condo but smaller than a single-family home.
- Multi-family homes (such as duplexes, triplexes, or fourplexes) can take a few different forms. It is common to take larger multi-story, single-family homes and divide them into 2-4 units. Duplexes are often purpose-built and can resemble townhomes that share only one wall.
- Special use homes are high-value, multi-generational, or vacation homes. You can distinguish these property types by their location or unique design, or special features (such as mother-in-law suites) that ensure that they appeal to a relatively limited group of tenants.
As you can see, there are a wide variety of property types from which you can choose. Your price range and selected neighborhood are your only limits. Despite this, some property types are better for first-time investors than others. In that regard, here are a couple of common choices.
- Single-family homes can be the right choice for a first property!
- These types of homes appeal to a wide range of tenants because they tend to offer more privacy and space.
- They often appeal greatly to families, so expect to find tenants who may stay longer in the property and may bring children with them (or have them come into the picture relatively soon).
- This type of property can make you consistent money and cushion you against market fluctuations.
- This consistency means that this type of property will have strong resale value as well.
Single-family homes often require more maintenance than other property types (relative to the number of people living in them) because they are less population-dense than a townhome or multi-family home occupying a similarly sized lot or structure. This fact means that you may be spending a little more on upkeep relative to the rent that the property brings in compared to other types of rental property.
There are advantages to the single-family home structure beyond resale value: landlords are generally not responsible for yard care with these types of properties. If you go this route, working with Dallas property management to draft the right kind of leasing agreement will maximize its value!
- Multi-family homes can be an excellent starter property if you can find one at the right price and location.
- If you choose to occupy one of the units as your residence while renting the others, you qualify for certain Fair Housing Act (FHA) exceptions.
- This type of property is excellent for spreading risk across multiple units! They also tend to be more profitable than a single-family home.
With a single-family home, you may encounter periods where your property sits without a tenant or where a maintenance issue precludes you from renting it. With a multi-family property, you’ll always have some amount of money coming in—even in those painful periods.
This type of property does come with more turnover and more people to deal with, so even with the higher and more consistent income, you need to decide if the juice is worth the squeeze. Of course, if you work with the right Dallas property management company, you're less likely to need to worry about turnover from the start.
Condos or Townhomes
Condos and townhomes can be suitable starter investments because they generally come with a lower barrier to entry. Depending on where you live, they can be cheaper than single-family homes or entire multi-family units—and you can generally find a reliable market of tenants in young professionals or retirees.
- This type of property will usually hold value consistently as well.
- Most condos or townhomes come with an associated HOA, so be sure that you know what you’re getting into concerning bylaws and CC&Rs that may restrict your ability to rent the property.
- Be sure to factor HOA fees into your rental costs as well.
You may find that buying low-cost condos, renovating them, and flipping or refinancing when you’ve gained some equity can be a good strategy.
Reach out to the Professionals!
So, which property type is right for your portfolio? There is a lot to consider, both from the perspective of your long-term strategy and your first steps. However, working with the professionals at RentHub Property Management is a great way to get started. We'll evaluate your current holdings with you to determine which type of property will be a good addition for your financial future!
If you're interested in more information about growing your portfolio, a great place to launch from is with your copy of our FREE guide to real estate investing! It will give you a chance to see if passive income is a vehicle for your financial goals that works with where you are (or want to be) as a landlord.
Download The Investing Guide