So, you’re looking to build wealth in a great real estate market that shows solid long-term growth, and you’ve chosen Windsor (an excellent choice!).
Now comes the tricky part: choosing your investment category. There are many influential voices out there that will try to sway you one way or the other. Many of them don’t hold water. We’ve been in the Windsor residential real estate market for over a decade. We’ve seen what works and what doesn’t. We love sharing what we know because an informed real estate market is a healthy real estate market. So, here’s our breakdown of the pros and cons for both asset types and how you can maximize your return on investment.
Single-family
This is the classic gateway to real-estate investment. It’s a tried-and-true asset class with serious draw for families, students, and workers in any market. One of the advantages of owning a single-family property is simplicity. If you have a good property and maintain it well, by and large, your returns will be steady, predictable, and easy to manage. Single-family drastically limits the number of tenants you have to keep track of and can net you a handsome return on an asset that is likely to appreciate significantly over its lifespan, especially in Windsor.
If you already own a home, you can also consider building an accessory dwelling unit, one of the easiest ways to get started in the single-family residential rental game. Building one of these can greatly add to the value of your home and enable you to keep a close eye on your investment with minimal effort.
The downside, of course, is that your returns are limited to one family per property. While the stability is attractive, if you are looking for a more efficient investment by the square foot, multifamily investment is the way to go.
Multifamily
Multifamily real estate investment is where you can really turn up the heat and generate some serious income. The initial investment will most likely be a little bit steeper, but the payoff over time can be immense if you manage your property correctly. Your rent per square foot will be much higher in multifamily than in a single-family property, which leads to a better bottom line and hopefully the ability to expand your operation if you so choose.
The disadvantage of owning multifamily real estate is the added risk factor and the need for more sophisticated property management practices. The same “set it and forget it” approach that may work for a single-family residential property will not work on a multifamily property. Everything from plumbing, to HVAC, to preventative maintenance, will be more challenging to manage and more expensive to maintain. And managing a rotating roster of tenants is much more complicated than having a single tenant in a house.
This is where multifamily investors have a decision to make. They have three paths to choose from:
- Commit the time necessary to manage your properties well and do it all yourself
- Set it, forget it, and hope nothing goes wrong
- Hire a property management company to run your property for you
Options one and three are far and away the best ways to ensure long-term return on your investment. Option two is a sure-fire way to end up with a lemon of a property that will be difficult to sell and increasingly difficult to manage as maintenance and tenant issues pile up at an exponential rate.
If you’re a skilled DIY’er and go for option one, here is a helpful list of things you can do to help maximize your investment:
- Make maintenance a priority. Set aside money each year for maintenance, so you’re not stuck footing a hefty bill at a moment’s notice.
- Regularly inspect your property and hire a professional to do so every change of season or after any major weather events. Much like your yearly physical at the doctor’s office, this will help you ward off bigger problems down the line by setting you up to take preventative action.
- Invest in a background checking service. This saves you a lot of guesswork, leg work, and can save you thousands of dollars in legal fees and cleanup related to lousy tenants.
As with most things in life, the five P’s of success apply to make your investment bloom: Prior Proper Planning Prevents Poor Performance.
The more you do on the front end to set your property up for success, the better odds you have of netting profit and preserving the value of your investment. Don’t underestimate the power of planning ahead.
And if you decide to go with option three, be sure you choose wisely. Cheap and poorly run property management companies are a dime-a-dozen, and they will gladly take your hard-earned money and leave you with little to show for it. In our opinion, it is far better to do the hard work of managing your property solo than to hire a bad management company.
If the management company you are considering doesn’t believe in contracts, run. If the management company you are considering doesn’t treat you like a professional, run. If the management company you are considering doesn’t have a stellar track record, run for the hills.
If you’re considering inking a deal with someone, let us look it over for you and make sure everything is on the up and up. We love this market and want to make sure your Windsor experience is the best it can be. You are investing in a great market. There is no reason why anyone should put up barriers to your success, and we want to help you clear a path to long-term wealth.
If you have any questions about the market, investing in multifamily real estate, or anything else, do not hesitate to reach out. Our door is always open, and we want to be a part of your investment journey.