Every investor must answer for themselves the question of which investment types are suitable for him or her, based on factors including available capital, risk appetite and tolerance, available time, expertise, or access to experts, and more. But many investors are attracted to residential real estate for various reasons. Investing in residential real estate can include single family homes as well as multi-family housing.
Multi-family housing includes a wide range of property types, starting with duplexes (the investor may buy the duplex and live in one unit while renting out the other) and going all the way to complexes with thousands of units. The smaller properties (up to four units) can often benefit from mortgage rates on par with single family, owner-occupied financing. Buying a smaller property allows the investor to try out being a rental owner with a smaller investment, compared to a more sizable housing complex. Larger apartment complexes are considered commercial real estate, and ownership can bring more time-intensive responsibilities or the need for professional assistance.
One way to quickly enter the multi-family housing market or expand your presence is through investing in a REIT (Real Estate Investment Trust). A REIT is a trust or company (privately or publicly traded) that invests in real estate and related assets. REITs are pass-through companies, which allows them to avoid income taxes at the corporate level, and to maintain that status, they must follow specific rules:
REIT investments offer investors a means of owning (fractionally) larger and potentially more attractive properties than they could have access to on their own and with a very low entry price. REIT investments can provide genuinely passive income since the investor has no direct control over the management decisions and no property management involvement.