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What is Residential Investment Property?
Mary McMahon
Mary McMahon
A residential investment property is a real estate property which is not occupied by the owner. Acting as a landlord, the owner rents out the property to tenants, or contracts tenant management to a property management company. There are a number of different types of residential investment property, and many people are introduced to the world of real estate investing through such properties, gradually acquiring skills which allow them to invest in bigger projects and to explore other types of real estate investment options.
The most basic type of residential investment property is a single family dwelling which the landlord rents out. Other types can include multi-unit properties, which can include several freestanding structures on the same property, duplexes, townhouses, and other types of multiple unit arrangements. The largest residential investment properties are apartment complexes, including residential apartment towers which can hold hundreds of units.
Managing a residential investment property can be a lot of work. In addition to finding and keeping reliable tenants, a landlord must also be involved in the maintenance of the property, responding to tenant complaints and providing routine maintenance which keeps the property in good shape. Landlords must also be concerned with servicing a mortgage, keeping property taxes current, and obtaining the appropriate insurance for their property.
The amount of income which can be generated from such a property varies, depending on whether or not it is mortgaged, the size and condition of the units, the area, and the landlord's abilities. Expenses associated with residential investment properties are considered writeoffs for tax purposes, just like the expenses associated with running any business. For example, when a landlord pays to have a house painted, hires a plumber to fix a backed up shower, or pays for the installation of landscaping at an apartment complex, these expenses are all writeoffs.
Purchasing residential investment property is a major commitment and it can be tricky to make good investment decisions. Landlords need to consider issues such as potential depreciation, development around the property, and socioeconomic shifts. A house may be in a very desirable area when a landlord buys it, but the community could change and the home could end up in a depressed neighborhood where it will be difficult to make a profit from the property, let alone meet the costs of the mortgage. This type of investment is also a lot of work; while tenants often bemoan their lazy landlords, landlords with a number of properties are often constantly on the go to deal with ongoing problems, routine maintenance, tenant turnover, and the myriad issues associated with property ownership.
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...AS FEATURED ON:
AS FEATURED ON:
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![Residential investment property is subject to local real estate taxes.]()
By: emiliezhangResidential investment property is subject to local real estate taxes. -
![Townhouses may be a type of residential investment property.]()
By: Chris BoswellTownhouses may be a type of residential investment property. -
![The largest residential investment properties are apartment complexes.]()
By: Gina SandersThe largest residential investment properties are apartment complexes. -
![Purchasing residential investment property is a major investment.]()
By: Mikael DamkierPurchasing residential investment property is a major investment. -
![Finding and retaining reliable tenants is only one aspect of managing residential investment property.]()
By: Syda ProductionsFinding and retaining reliable tenants is only one aspect of managing residential investment property. -
![Home depreciation may occur if surrounding homes in a neighborhood are sold for less money than purchase price.]()
By: EyeMarkHome depreciation may occur if surrounding homes in a neighborhood are sold for less money than purchase price.
Discussion Comments
@Subway11 - I wanted to add that investing in real estate for the purpose of renting the properties out is a lot of work, but some people really feel that these investments are what gave them a certain level of financial security.
What I like about the idea of residential investment real estate is that your tenant actually pays down your mortgage for you and over time you will have a property that is paid off that generates income.
In addition, real estate eventually appreciates although it would probably be some time before we see that. If you are buying a property, you can easily ask for the rental income records which will tell you if the property is a good deal or not.
You also want to see copies of the maintenance records and definitely have a property inspection to make sure that the property is not in need of any additional repairs that you are unaware of.
@Sneakers41 - I agree and I also think that when you are looking at investment properties for sale you have to consider how much time and money that you have available in order to devote to your investments.
The more units that are involved with the higher the time commitment. There are single family homes, duplexes, and multi unit buildings. The multi unit buildings will get you the most bang for your buck but it also the most expensive and time consuming of all of the properties.
A single family home is the cheapest but if you have trouble with the tenant or they don’t pay the rent that will wipe you out so you have to find a balance that works for you. The thing to always remember about residential real estate is that it does require work. This is not an arm chair investment.
If you take the time to screen your tenants and stay on top of the maintenance you should be fine. The problem that I think that people have with residential investment real estate is that they think that all they have to do is find a tenant and that’s it.
But that is usually not the case. If you have money set aside and treat this like a business it could be lucrative. I know a lot of people that started out with one residential investment property only to buy more.
@Cupcake15 - I think that if you can afford to buy residential investment properties you should consider buying in the locales that are the most desirable because not only will you always have renters but you will see a better appreciation of your property values.
If you think like a renter you will know which locations are best. Locations that are centrally located or are near the beach are usually the best. These areas will bring you the most money when selling your investment property.
You might even consider getting looking at great deals on international investment properties but you have to have experience visiting the country to know where to buy. Also, the more stable the government the safer the investment will be which is another point to consider when buying investment property overseas. You would also have to have a great property management company manage the property for you so that is another point to consider.
I agree and I wanted to say that investment property mortgage rates tend to be slightly higher than a mortgage on a primary residence. This is due to the fact that the property because it is an investment is a little riskier for the bank which is why the rates are higher.
The bank figures that if you have difficulty paying your bills your investment property is the first thing that you will not pay. They also have different qualifications for second properties. If the property is only going to be rented out for ten days or less a year it could be classified as a vacation property and I believe that the mortgage rates are lower.
If you decide to rent the property longer than that then I believe it is classified as an investment property and you will pay the higher interest rates.
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