Organized by the complexity of each deal, here are the most typical types of real estate investments. 

· Land – Land is the simplest form of investment. It can be held for its appreciation value, used as a place to build, and can be leased out to farmers or other land users. Land is often used to speculate on up-and-coming areas. The advantage of buying land is that it is usually one of the easiest investments to understand and manage (no tenants or businesses to deal with). The disadvantage of buying land as an investment is that it is doesn’t usually breakeven on a cash flow basis, so it requires your money to be locked up for often long periods of time. 

· Single Family Home – This is the most common type of real estate property available. They include the typical definition of a home – 1 family, 1 building, 1 parcel of land. They are also easy to understand and fairly easy to manage. Another advantage of these properties is that it is much easier to get a loan for a single family home than for a multi-family or commercial dwelling, and you can often buy them with less money down than other investment properties. The disadvantage to a single family home is that you miss out on the economies of scale that are produced by having more units on one property. For example, a four-unit property would all share the same land and the some of the same building (roof, walls, garages, etc.), thereby being less expensive per unit. Also, when trying to get a single family property to produce positive cash flow, it is more difficult because of this relatively high cost per unit. You can get around this by getting a good deal on the property or by putting more money down. 

· Townhouse – A townhouse is typically two units that share a single wall and, sometimes, other amenities (like heaters, water heaters and air conditioning). The advantage to buying a townhouse is that you get some economies of scale because you split the costs of maintaining the building, the cost of the land, and of the building and amenities, over two households. Because you also collect rent from two sources, you somewhat diversify your income too. However, because there are two families living there, it is more difficult to manage the property. 

· Condominium (Condo) – A condominium is similar to buying an apartment unit. You are not buying the land or the exterior of the building, but rather just the inside living space. Condos are governed by all owners of the condominium association, and managed by a group of elected representatives. Each month, a fee is charged to each condominium owner, which covers the management fees, maintenance, lawn care, special projects, and other miscellaneous expenses. The positives of owning a condo are that there is no direct upkeep or maintenance required and the units are easy to rent out as apartments. The negatives of owning a condo are that you must pay the condo fee each month, which often increases and is out of your control. Also, there are strict rules associated with condos that often dictate what type of construction or remodeling you can do, what type of tenants you can have, and other petty rules that can often become a nuisance. Also, if you wish to become proactive in the condo association, it can take up a substantial amount of your time. 

· 2-4 Unit Multifamily Dwelling – These investment properties consist of a single piece of land that has separate living units for between 2 and 4 families. It could consist of two flats, a duplex, a townhouse, separate buildings or a small apartment building. These types of investments are advantageous for several reasons. First, these units are eligible for a conforming loan. A conforming loan can be resold from lender to lender and, because it has universal characteristics, these loans almost always carry a lower interest rate than non-conforming loans. To find the conforming loan limits that apply to you, check with your state or county’s FHA or real estate department. A second advantage is that you can purchase these properties as a home (rather than an investment). Home loans are dramatically less expensive (lower interest rates) than investment loans and are available for a much higher percentage of home value (up to 100% in some cases versus only 70-75% for investment loans). Another advantage to these properties is the economies of scale that result from having several units on the same piece of land. In essence, the cost of the land is allocated over 2 to 4 units and therefore reduces the cost per unit of your investment. These properties are good places to start for someone beginning in the real estate business because they offer good income potential and are fairly easy to manage (only 2 to 4 tenants to deal with). Another important thing to know about these properties is that they are typically valued on comparable sales and by using appraisals, rather than based on their income (like commercial properties). 

· 5+ Unit Residential Property – Another form of multifamily dwelling (your typical apartment complex), properties with five or more units fall into a different category. They are considered commercial properties and therefore have very different requirements. First, they are valued differently than most other properties. Instead of using comparable sales, they are typically valued based on gross income (or rents). Therefore, their prices are typically based on the value of the rents and their future value will likely change based on the appreciation of rents (rather than the demand for new homes). The second difference is in the type of loan you can get for these properties. Since they are considered commercial investments, you can only get a mortgage for up to 70-75% of the purchase price. Also, the interest rate on these types of investments will likely be 1-2% higher than a home loan rate. That means that not only will you have to put down more money to buy one of these investment properties, but you will also have a higher mortgage payment than a smaller investment property. The benefits, however, are the economies of scale in having many units. For example, you can add income-producing services like laundry, parking and storage. You can also leverage the size by hiring a property manager or a handyman to take care of all the nuisances that will surely arise. And perhaps one of the biggest benefits is the sheer volume of income that the overall property will produce – with 25 units for example, a 5% increase in rents that average $800 per month would result in $1,000 a month in additional income. 

· Commercial Property – Commercial property refers to properties that are rented by businesses rather than by people living in them. Your tenants are more sophisticated and typically pay higher rents. However, the downfall of these properties are that they have large, negotiated and complicated contracts that require quite a bit of expertise to manage. The big advantage of these properties is that you often get long-term leases (sometimes 10 or more years) that allow for stable and reliable income. Another advantage is that the income from these properties is usually much higher than residential properties. The disadvantages are that commercial loans are more expensive and require a bigger down payment. Also, you’ll surely need to hire a property management service and often need to remodel the premises and take care of things like furniture, desks, lighting, A/C, etc. Overall, these properties are not for beginners, but are great investments if you can figure out how to find good locations and learn the complexities of the deals. 

· Combined Residential / Commercial Property – These properties come in different forms, but are basically properties that are zoned for both residential living and for commercial (business) use. Examples, would be a live / work loft or a store that has an apartment above it. The complexity of buying these types of properties varies dramatically depending the property. For example, if you are buying live / work lofts, you only need to find a tenant that wants to live there and run a small business. However, if you are buying a commercial property with an apartment above it, you need to deal with both commercial leases and residential leases, which can sometimes be overwhelming. Either way, you’ll need to get a commercial loan, which carries a higher interest rate than a home loan, and you’ll need to come up with more money (typically 25% of the property value) than a home loan.

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