By far, the most common type of investment property among independent real estate investors is a single-family home used for investment purposes (SFI).  Six out of ten independent real estate investors own an SFI that is used to produce rental income. 

QUESTION: Which of the following types of properties do you currently own?

BASE: Combined Investors (N=287). Values indicate the percentage of total investors surveyed in each sample.

Investors who purchase single-family homes as an investment (SFI) outnumber the second most popular investment property type, condominiums, by nearly three to one.  When combined, residential 1-4 properties, which include SFIs, condominiums, town-homes and apartment buildings with less than five units, are by far the most popular types of investment properties among independent real estate investors.

About 11 percent of independent real estate investors own a multi-family (apartment) building with five or more units with a property value that is less than $10 million.

Mixed-use buildings, composed of commercial business units on the ground floor and residential units above, account for 4 percent of investors. (Mixed-use buildings may sometimes be operated as businesses with owner-occupied residences above.)

Aside from buildings used primarily for residential purposes, small commercial buildings valued at less than $10 million account for 13 percent of investors.

The popularity of SFIs over other property types is linked to several factors, including:

• A lower price compared to other investment properties.
• Greater appreciation potential given the demand for home ownership.
• Lower maintenance fees.
• Lower tenant turnover.

Implications

Many brokers don’t offer investment property mortgages because they believe they are more complicated than consumer home loans.  But an SFI is still a single-family home.  It’s still in the same neighborhood where brokers already do business.  The appraised value is still based on the other single-family homes in the same neighborhood.  Therefore, all of the experience a mortgage broker has in handling consumer home loans is still relevant when offering investment property loans.  The only difference is that the income used for investment properties is based on the rent paid by tenants who lease the property (obtained from rental comps for similar properties) rather than the borrower’s personal income.  By sticking to what they already know, the opportunity for brokers is big, but the learning curve is small.

However, there is one important advantage of offering mortgages for investment properties.  Independent real estate investors typically purchase multiple properties.  This allows brokers to generate multiple deals from the same client.