A residential property is a typical space where people live and build their lives.
The world of real estate is dynamic as it deals with various types of properties. Hence, understanding the uniqueness of residential properties is very important for both property managers and homeowners.
Owning residential properties is an excellent investment.
However, to make this investment, you need first to understand what a residential property is and the various types and features of these properties.
What is a Residential Property?
A residential property is a living space that provides comfort, shelter, and a sense of belonging.
Unlike commercial or industrial spaces that cater to business activities, residential properties are primarily intended for personal use.
These properties include various dwelling options, ranging from standalone houses to modern apartments, luxurious condos, and charming townhouses.
Types of Residential Properties (and Their Key Features)
Residential properties differ in size and space. They range from fully private living spaces to shared buildings.
1. Single-Family Homes
Single-family homes are one of the most common types of residential property. In fact, statistics show that 2022 saw over 5.8 million single-family home sales and 644,000 newly built homes in the U.S.
Single-family homes are purposefully designed to cater to the unique needs of a single family. They are versatile as they can be turned into shortlets or vacation homes.
Examples of single-family homes are cottages, villas, bungalows, and mansions.
What sets them apart is their physical structure and the sense of tranquility and independence they offer.
- It has a yard: Single-family homes have a yard that can be used for outdoor activities, gardening, and leisure. The luxury of private outdoor space encourages a deeper connection to nature, providing a serene and relaxing environment.
- Privacy: A single-family home is a place for privacy where the occupants can relish personal moments without intrusion. There are no shared walls or communal spaces that can cause noise or intrusion.
- Independence: Residents can tailor both the interiors and exteriors to their preferences, reflecting their unique style and taste. The sense of ownership extends beyond the property, including the surrounding yard and any additional amenities.
Apartments are more self-contained units in larger buildings. It is a residential property set in a larger facility.
Hence, there can be multiple apartments in a single building.
Unlike the single-family home, there is no yard in an apartment. Also, it is more modern compared to the single-family home.
Apartments are perfect for single people or couples who do not have children yet.
Key Features of Apartments
- Communal Living: Although an apartment is a residential property, it is not very private. Residents share common spaces, creating opportunities for interaction, friendships, and a supportive environment.
From shared lounges to rooftop gardens, these spaces cultivate a unique social fabric.
- Convenient: Apartments are often situated in the cities. This means there is proximity to city centers, public transportation, and bustling hubs of activities.
Residents have easy access to work, entertainment, and essential services. Thus making daily life more convenient and efficient.
Apartments are so conducive that their demand is rapidly increasing. A recent report shows that about 266,000 new apartment units need to be built to meet growing demands.
- Lower Maintenance Commitment: Living in an apartment means you don't have to carry the maintenance burden alone. You can share maintenance costs for common areas and facilities.
- Flexible Living Options: Apartments come in various sizes and layouts, catering to multiple needs. From cozy studios to spacious multi-bedroom units, individuals, couples, and families can find the perfect fit for their lifestyles.
3. Condominiums (Condos)
Condominiums are commonly referred to as condos. They are like apartments situated in a larger building.
However, condos are more significant with more space.
Each condo unit functions as a distinct, individually owned living space. It blends personal space with communal living.
So, condos are the perfect blend of single-family homes and apartments.
This unique arrangement offers various advantages and a few considerations that enhance the condominium living experience.
Key Features of Condominiums
- Shared Amenities and HOA Fees: Residents of condominiums share amenities and homeowner association (HOA) fees.
The facilities range from fitness centers to lounges and swimming pools.
Condo owners can enjoy conveniences without the need for individual maintenance. However, this convenience is often accompanied by HOA fees, which contribute to the upkeep of shared spaces and services.
- Privacy with a Sense of Community: Condos allow residents to take delight in their living spaces while fostering connections with neighbors.
They are designed to encourage interaction, creating a friendly environment.
- Location Advantages: Condos are often strategically situated in urban centers or desirable locales. This location grants residents easy access to cultural hubs, entertainment, and essential services.
Townhouses are one of the best residential property options. They are single, semi-standalone buildings attached together as a collection of houses.
Key Features of Townhouses
- Multi-Level Building: Townhouses stand tall as multi-level buildings, often spanning across two or more floors. This vertical expansion maximizes living space and creates a distinct separation between different functional areas.
- Attached Residence: The defining trait of townhouses lies in their connectedness. These properties share walls with neighboring units.
The layout of townhouses naturally encourages interaction among neighbors.
However, residents can still maintain their individual privacy.
Townhouses are ideal for people who enjoy the sense of community but still value their personal space.
- Relative Affordability: Unlike full standalone houses, townhouses are often more affordable. This makes them accessible to a broader range of potential homeowners.
The affordability opens doors for individuals and families to experience the benefits of homeownership without compromising on comfort.
Townhouses are ideal for families living in urban areas.
- Low Maintenance: Townhouses require lower maintenance efforts than full standalone houses.
Homeowner associations typically manage exterior upkeep, landscaping, and standard area maintenance. This reduces the individual homeowner's responsibilities.
- Prime Locations: Many townhouse complexes are strategically situated, offering convenient access to urban centers, public transportation, and essential amenities.
- Architectural Diversity: The architecture of townhouses can vary widely, from modern designs with sleek lines to classic styles with intricate details. This diversity allows homeowners to find a townhouse that resonates with their aesthetic preferences.
5. Mobile Homes
Mobile homes are movable homes. They are also called manufactured homes because they are built in factories and transported to their intended locations.
These homes are placed in a foundation or support system and transported by a specialized trailer or truck. There are wheels attached at the base of the houses, making them movable.
Key Features of Mobile Homes
- Factory Construction: Unlike other land properties that are built on-site, mobile homes are constructed at the factory and moved to the desired location for the final fix.
- Affordable: Mobile homes are more affordable than traditional site-built homes. This is why they are often preferred by residents looking for a more convenient option.
The mobile homes are not less of a traditional home because they have rooms, a living room, a bathroom, a kitchen, and other amenities a conventional home will have.
- Temporary or Permanent Placement: Although mobile homes are moveable, they can also be made permanent on a support system that acts as a foundation.
5. Multi-Family Homes
A multi-family home is a single building divided into several family houses, separated by a wall. There are three common types of multi-family dwellings: duplex, triplex, and fourplex.
These are smaller residential homes with simpler designs. They are buildings with multiple separate residences (units).
The duplex has 2, the triplex has 3, and the fourplex has four units.
In most cases, the units are attached to each other just like apartments (one above the other). In other cases, they are attached side by side, like townhouses.
Multi-family homes are similar to condos, townhouses, and apartments; people often use them interchangeably.
Each unit has its own living room, guest rooms, kitchen, and bathroom. It is like a single-family home but in multiple units.
Also, although a multifamily home has different units, they are separated by a shared common wall.
Benefits of Investing in Residential Properties
Investing in residential properties offers a range of benefits that attract both seasoned investors and newcomers to the real estate market.
1. Steady Rental Income
One of the basic amenities of man is shelter. This means that irrespective of the economy's state, people will always look for convenient areas to live in.
Hence, investing in residential homes is a great way to earn a steady income.
Whether it's a single-family home, an apartment, or a condo, tenants pay rent regularly.
The rent payments mean a consistent stream of income for property owners.
Residential properties also serve as a means of building long-term wealth. Over time, as mortgages are paid down and property values rise, investors can accumulate equity and increase their net worth.
Over time, residential properties have the potential to appreciate in value in the real estate stock market.
Economic growth, development in the surrounding area, and housing market trends can contribute to the property's value increase. This allows investors to profit when they decide to sell.
A real estate investment diversifies your investment portfolio, especially when you invest in residential properties. A diverse portfolio is a great way to reduce risk by spreading investments across different asset classes.
4. Tangible Asset
Residential properties are considered tangible assets because they are physical structures that occupy a specific piece of land.
They can be seen, touched, and assessed, thus providing a sense of security for the investors.
As an investor or property owner, you can visit the property, inspect its condition, and make necessary improvements.
5. Tax Benefits
Real estate investors can take advantage of various tax deductions. Mortgage interest, property taxes, insurance, and certain property-related expenses may be deductible, reducing the overall tax liability.
- Mortgage Interest Deduction: The interest paid on your mortgage loan can be deducted from your taxable income. This can significantly lower your tax burden, especially in the early years of the mortgage when interest payments are higher.
- Property Tax Deduction: Property taxes on your residential property can also be deducted from your taxable income. This deduction can offset some of the costs associated with property ownership.
- Depreciation Deduction: Residential properties are considered to depreciate in value over time due to wear and tear. You can claim a portion of this depreciation as a deduction on your taxes, which can reduce your taxable income.
- Repairs and Maintenance Deductions: Expenses related to the property's repairs, maintenance, and upkeep can be deducted. This includes costs for painting, plumbing repairs, and other necessary care.
- Operating Expenses Deductions: If renting out the property, you can deduct various operating expenses, such as property management fees, utilities you pay on behalf of tenants, and advertising costs to find tenants.
6. Control over Investment
Property investors have some level of control over their investment properties. For example, you can make decisions regarding property management, renovations, rental terms, and other factors that can impact returns.
This way, you can monitor what happens to the property.
You can manage the property yourself or hire a manager to handle the daily tasks.
By having control over property management, you can ensure that the property is well-maintained and that tenants are satisfied. A well-maintained property will appreciate in value over time.
Residential Properties Vs. Other Properties
Real estate comprises different properties, from residential to commercial, industrial, and investment. But how do these properties differ from the residential ones?
Residential Properties vs. Commercial Properties
The most prevalent difference between these two types of properties is their purposes. Residential properties are safe havens explicitly designed for living purposes.
They are very comfortable and located in more serene environments.
On the other hand, commercial properties are mainly for business purposes. They are often situated in noisy or overpopulated areas like markets, business centers, industrial sites, etc.
However, there are other significant differences between residential and commercial properties.
Individuals and families use residential properties as homes, apartments, and living spaces. However, commercial properties are used for various business activities like offices, stores, services, retail offices, etc.
2. Rental Income
The way of getting rental income is similar. Landlords can use the properties to generate revenue from tenants (individuals, families, or businesses).
3. Lease Terms
Residential properties are often leased on short or mid-terms. For example, six months, one year, and two years.
Commercial properties are leased on longer terms ranging from 5 years to 10 years and more. However, this depends on the type of commercial activity involved and the business size.
For example, large businesses can have longer lease terms than small businesses.
4. Property Management
The way of managing residential properties differs from that of commercial properties.
Residential property management involves directly handling tenant requests and maintenance. It also involves ensuring that the environment is conducive enough for the occupants.
As a residential property manager, you must ensure that the utilities are well-serviced.
On the other hand, a commercial property manager focuses on maintaining the property's functionality. Thus ensuring the smooth running of the commercial activities.
Property managers and owners need to know how to manage each property and what aspects to focus on.
5. Demand-Market Dynamics
The demand for residential and commercial properties differs.
The market demand for residential property is based on the location's growing population, lifestyle changes, and economic situation.
For example, a geographical area experiencing population growth (through birth or migration) will need more residential buildings.
Therefore, more people will demand residential areas that are convenient and within their reach.
But, the demand market for commercial property is different. It is based on business expansion, industry trends, and economic growth.
Residential Properties vs. Investment Properties
An investment property is a money-generating property. In other words, it is a property purchased solely to generate income.
Investment properties can include residential, commercial, and even industrial properties as long as they are assets that provide steady cash flow for the investor.
From this definition, you can already see that a residential property differs from an investment one. Let's further dive into the differences and compare both properties.
1. Primary Use and Purpose
Residential properties are primarily designed as living spaces. Therefore, they include houses, apartments, condos, and townhouses where individuals and families reside.
However, an investment property is purchased for a return on investment through rental income or property resale.
Investment properties include residential properties rented to tenants and commercial or industrial properties.
Families or individual homeowners own residential properties.
On the other hand, because of the nature or purpose of an investment property, it is often owned by a corporation or a group of investors. An individual can also own it.
3. Property Management
Property management for residential properties may involve addressing tenant concerns, maintenance, and creating a comfortable living environment.
For investment properties, property management is focused on maintaining the property's value, ensuring occupancy, and maximizing rental income.
4. Term of Lease
Residential properties are often leased out to tenants for a long term—for example, five years, ten years, or more.
However, the lease terms for investment properties differ according to the property rented out. For example, short lets and hotel rooms are leased out for a shorter period like a month, a week, or a few days.
However, some industrial or commercial properties have longer lease terms. Most commercial properties (multipurpose buildings) have shorter lease terms, too.
While residential property is restricted to just buildings for living purposes, investment properties aren't just land or building properties.
They also include art, collectables, securities, and digital art & spaces.
Residential Property Tax
Residential property tax is a tax local governments impose on residential property owners. This tax aims to fund various community public services and infrastructure projects.
There is no fixed residential property tax, as the amount depends on the property's value. To get this amount, you should multiply your tax rate by the current market value of your property.
The tax assessor recalculates the tax rate annually.
Your residential property tax is often billed annually or every six months, and you can pay the total amount or installmentally.
Failure to pay your property tax leads to consequences like additional fines, interest charges, or tax lien on your property.
You can qualify for residential property tax exemptions or deductions. Most jurisdictions offer this incentive to senior citizens, veterans, people with disabilities, and very low-income homeowners.
These tax deductions or exemptions are the government’s way of reducing the financial burden on certain people.
Use A PMS To Manage Your Residential Properties
Residential properties are an excellent investment that offers a great return on investment. You can invest in various types of residential properties, and we have explained each in this article.
Owning a residential property has many benefits. However, to enjoy it to its total capacity, you need to manage it properly.
If you want to purchase residential properties as a form of investment, they must also be appropriately managed.
Hence, you need a property management system to manage all the administrative roles and get real-time insights into your property’s performance and occupancy rates.
Booking Ninjas is the perfect PMS solution to help you perform these tasks. It integrates cutting-edge technology with property management expertise.
This software enables you and other property managers to navigate the complexities of residential properties efficiently.