Apartment or single-family housing: What property to invest on

Millions of people in America make the choice each year of whether or not to move into an apartment or a single-family housing. Given that real estate is perhaps the biggest investment adult Americans enter, weighing all the options is necessary when making this choice. This is why real estate investors should be savvy about the type of properties they invest in. Do they want to keep to single-family housing or do they want to invest on residential buildings? Ron Cadman of Investar USA believes that people should know what property to invest in, as well as the circumstances that come with their choices.

From the get-go, there is a large difference when it comes to the financing of single-family housing and apartments. Qualifications for residential lending and commercial lending differ in aspects like method of valuation, credit scores, prepayment penalties, and restrictions. While apartment rental may seem like the cheaper option, there are other factors outside financing that can tip the scale.

Both properties are valued differently. One- to four-residential building units are valued using the comparable sales approach while those with five units and up are valued using an income approach that’s dependent on the net operating income the building is able to produce.

From an investor’s perspective, going with an income approach for valuation is one way to understand the current value of a property and it’s future value once renovated. Real estate investors are also able to increase the value of their property much faster in a market where cap rates are declining. Cap rate, of course, is equivalent to a residential building’s net operating income divided by its value. According to Ron Cadman, the cap rate is typically lower for properties that have strong demand- located in desirable areas.

Investar USA is a leading North American residential and commercial property developer specializing in renovating and repositioning diverse properties throughout the U.S. and Canada.

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