Jason Cohen is the founder of the informal real estate advising group, Jason Cohen Pittsburgh. As such, he has considerable experience in residential and commercial real estate investment, and is an adept at considering real estate transactions, particularly in Pittsburgh. Here, Jason Cohen Pittsburgh considers the quirks and considerations affiliated with the decision to invest in a residential property.
Consider this hypothetical. You have the capital to buy a multi-family home in a good neighborhood. It needs a new coat of paint and a few appliances, but you saw its promise during your first walk-through. You’ve crunched the numbers, and you can afford to buy the property and make repairs – but you know doing so will leave you scraping the bottom of the proverbial financial barrel.
Do you buy it? Or do you give up on your budding real estate career and stick with your office-bound day job?
Investing in real estate is a tricky business, and one that professionals in Jason Cohen’s Pittsburgh real estate advising group have spent years navigating. Contrary to what daytime television might suggest, flipping, remodeling, and selling a home isn’t easy – and it takes far more than a walk-through to determine whether an investment is worth it. Jason Cohen himself depends on research-based decision-making; those looking to enter the industry should do the same.
First, let’s consider what a residential real estate property actually is. According to the Business Dictionary, this type of residence is a “type of leased property, containing either a single family or multifamily structure, that is available for occupation for non-business purposes.” As this definition suggests, there are a number of differing property types which fall within this category, each with their own benefits and detriments to a would-be investor. Let’s consider them individually.
Single Family Residence
As the title suggests, a single family home houses one or more people within a connected group. These properties generally have low management costs and provide excellent returns on investment (ROI) if they are bought at a low cost and renovated for sale or lease. If they are taken care of, single-family homes also retain a high resale value. However, this type of investment often incurs high startup costs due to renovation, and have high property taxes. Moreover, an owner loses out on profit every month that the house sits without a tenant.
Beginners often invest in multi-family homes, as they pose less of a financial risk than single-family residences or apartment complexes and offer an affordable home to the owner himself. These homes are almost always in demand and are convenient to manage, given that all units exist in the same building. Moreover, multiple units lessen the financial risk to the owner if a single unit stands unoccupied. Multi-family residences do face higher turnover rates and greater repair costs than single-family residence.
Apartment complexes must have at least five residential units to be considered as such. Like multi-family buildings, these properties are nearly always in demand and usually provide a high ROI. In good communities, a landlord could make considerable profit from remodeling a struggling building into profitable apartments. However, this residence type does require more complex financing agreements and greater management fees, and often faces high tenant turnover.
As you can see, each type of investment has its pros and cons. Thus, an interested investor must assess their financial situation to determine whether they are equipped to be a landlord or house flipper. Prospective investors should ask themselves:
Do I have the time and resources to manage my property?
Can I afford to buy, renovate, and maintain the residence(s) I purchase?
What financing options are available to me?
Will the specific neighborhood I buy into provide my residence with value?
Research is everything – so make sure you do your due diligence before you begin a purchase. Let’s return to the opening hypothetical for a moment. The would-be landlord has enough capital to buy and renovate the property – but not enough to maintain it after the fact. Thus, he should not purchase the property. However, his inability to spark a profitable real estate venture now doesn’t mean that he can’t return to the idea with greater capital and consideration later on. Each situation is different; make your investment decisions accordingly!
For more engaging content for practicing and aspiring real estate investors alike, please visit Jason Cohen’s website at JasonCohenPittsburgh.org.