Real Estate Investing: Types of Residential Rentals

No matter what, people always need a place to live and that is a big part of the reason that rental properties make such an attractive investment.  Here are some things to consider when choosing what type of rental property to buy in Bend.

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Single Family:  Houses are perhaps the most common real estate investment in Bend and often the first type of property new investors buy.  They are familiar to most people because most have owned or lived in a house at some point.  A house is also usually less expensive than other types of rental properties making them available to more investors.  There are houses of all shapes and sizes available in all parts of Bend so regardless of what kind of house you are looking for there are plenty to choose from.  The number of houses for sale in Bend means that finding others to compare to in determining value, income potential and potential ease of sale is relatively easy.  Houses are the easiest real estate investment to sell because the number of prospective buyers isn’t limited to investors but also includes home owners.  Most real estate investors are able to finance rental houses with a conventional mortgage and 25 percent down payment.

Small Multi-Family (two to four units):  Most often known as duplexes, triplexes and fourplexes they are called multi-family properties because there is more than one dwelling unit in the same building.  The cost of small multi-family buildings is higher than a single family house but not exponentially based on the number of units in the building.  A vacant unit is easier to deal with financially because one unit accounts for a fraction of the income as opposed to 100% in a vacant house.  Duplexes are the most common type of small multi-family property but finding comparables for these properties is more difficult than it is for houses and they are generally more difficult to sell than a house.  Value is usually determined by the real estate market (similar properties) not the income they produce.  These properties can be financed with a conventional mortgage and 25% down payment.  They can also qualify as a primary residence for the owner if the owner chooses to live there.

Large Multi-Family (more than four units):  Properties with five or more units most often come in the form of apartments.  Prices for apartment buildings in Bend can range from $300,000 (fewer than 10 units) to millions of dollars (hundreds of units).  Management can, at times, be a struggle with large multi-family properties and investors shouldn’t assume that just because there are more than ten units that the property will be able to support an on site manager.  For investors with enough money, buying one apartment building as opposed to multiple houses can be advantageous in that you can have all of your rental units in one place so you don’t have to run all over town to collect rents or make repairs.   Large multi-family properties can be tough to sell because of the small pool of potential buyers which means it can take much longer to get your cash out of this investment.  As a commercial property these are usually valued by the amount of income they can produce which puts a premium on good management.  They also require commercial financing which is much more complex than a conventional mortgage.

Each of these types of residential properties can be found in Bend and we look at each one as a rung on a ladder.  Investing in residential real estate isn’t for everyone but if it is something you are considering then a great place to start is with a house and work your way up that ladder.  If you don’t like owning a rental house then it is relatively easy to get out and invest in something else.  If you do like it then that next rung doesn’t seem like such a giant leap.

About Dan Seim

Dan Seim is the primary contributor to Preferred Residential's blog. He has been writing about real estate issues that affect home owners in Bend and Central Oregon since 2011.

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