Blog | Real Estate

The Wealth-Building Blueprint: Real Estate Investment Choices for Financial Freedom

Cash-flow Investment Properties like single-family homes to commercial buildings and office space have their advantages and disadvantages. Understanding them is the key to success!

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Investing in real estate is not a one-size fits all endeavor. Robert and Kim Kiyosaki has made this niche a favorite, but there are key strategies and choices that you need to know before starting out. Where are you going to invest and how should be your biggest questions.

There are pros and cons to each type of real estate investing. Single-family rentals and multi-family units come with their own ups and downs and some options, such as commercial property and warehouses are even trickier. Let’s break down the choices and their biggest pros and cons below.

Single-family Rentals and Multi-family Rentals

Single-family homes are typically the easiest and less risky of all the real estate options. You find a single-family home, maybe do some minor repairs or cosmetic updates to keep the property desirable and rent it out to one family.

The upside to this option of investing is that they are fewer risks involved for the investor.

You can spread the cost of maintenance and repairs across multiple units.

  • Single-family homes usually hold their value better than other residential property.

  • Renters tend to stay or lease a single-family home longer which reduces turnover and extra expenses on the investor.

  • Renters who lease well-maintained, single-family homes in generally nice areas as opposed to other residential lease options, usually take more pride in the home, helping to keep your investment protected.

  • For a single-family, you’ll find there are fewer maintenance and repair requests than that of a multi-family unit.

  • Property taxes are often proportionately lower for single family homes than multi-family units or apartment buildings.

  • When it’s time to sell, you might find it easier to sell a residential home than a larger building or multi-family building that would normally only attract investors.

  • Some disadvantages to investing in a single-family home as opposed to a multi-family property would be:

  • When your tenant leaves or end their lease, your cash flow is zero until you find a new tenant.

  • The market for single-family rentals is smaller than with multi-family options. Many people who can afford the rent of a larger home can often afford to buy one.

  • Vandalism and theft are more common with vacant single-family homes than with vacant multi-family homes or apartments.

  • Muiti-family units and apartment buildings offer benefits and disadvantages as well. Multi-family properties can include duplexes, triplexes, fourplexes and condos or town houses, as well as apartment buildings. Some of the ups and downs for these types of investments are as follows:

  • The risk of no cash flow is far lower than a single-family home. If one family moves out, you have other renters still paying while you find another tenant.

  • An apartment building or a multi-family property is easier to manage geographically than if you had the same number of renters in single family homes across a town or city.

  • Sometimes you can have the option of having a manager live in one of the units, on-site, giving you continuous monitoring.

  • Maybe the best upside to these types of properties is that they rent quickly!

Some of the downsides might include:

The financing for a larger property with multiple units is often trickier and harder to obtain.

  • The cost of landscaping, trash removal, amenities is usually higher whereas renters of single-family homes typically do those things themselves.

  • The turnover rate in apartments or multi-units is often higher than that of single-family homes.

Commercial Properties

There are many types of commercial properties that generate cash flow. The common ones are office space, warehouses/industrial property, and retail complexes such as strip malls and shopping centers. Commercial investing tends to be more complex and costly regarding almost every aspect but the return on your investment is usually far greater than the residential investing options. Here are some pros and cons for commercial spaces:

  • Lease periods tend to be longer than for residential properties. Business tenants, like shop owners, office space rentals and even industrial businesses that need manufacture space like warehouses usually stick around longer to avoid losing money themselves.

  • The rental rate is almost always higher for commercial space than residential.

  • Commercial tenants have a vested interest in keeping the property in tip-top shape as the appearance of their leased space can reflect poorly on their business.

  • Many commercial property leases are set on a ‘triple net’ basis. This means that the tenant covers all fixed costs such as insurance, taxes, maintenance, repairs, and utilities.

The disadvantages of commercial property investing can be big factors in your decision to jump into this area of investment. Some of those include:

  • Commercial investments are costly and far more complex than buying a residential home. Financing is often difficult, and the size of the loans and repayment options can be intimidating.

  • When the economy is down turning or suffering, either on a national scale or even in smaller cities and towns, you can see vacancies soar for commercial properties. The pool of potential renters for commercial property is significantly smaller than residential, and you might find yourself sitting on an investment that is empty and not generating cash flow for a significant amount of time.

  • Industrial properties and warehouses generally have longer leases and less overhead for maintenance but they are limited to a very small amount of potential tenants. Those properties are also in the line of fire when the economy slows down and businesses are forced to shut down.

If you are going to invest in real estate, it is key to understand your options, the risk and reward for each and how comfortable you are in those niche markets. A residential investment can be more forgiving, safer, easier to obtain and good entry point for cash flow. A commercial investment might be tricker to obtain, a larger risk, but with much larger returns. Multi-family properties fall somewhere in the middle. Take these pros and cons and weigh them against your personal financial situation and see which one is right for you.

Original publish date: May 26, 2023

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