Many Small vs. Few Large
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What type of investment property do you want to own?
There are numerous differences regarding the ownership and management of many small properties vs. a few large properties (e.g., 10 single-family and 5 duplexes or one 20-unit building) that one should consider. Some of the important differences between ownership and management are summarized in the table below. Pros and cons are generalities and do not apply to all properties or all the time
Many Small |
Few Large |
Pro |
Con |
Pro |
Con |
More affordable per property - can build inventory over time |
More travel for inspections and maintenance |
Less travel for inspections and maintenance |
Higher priced per property - requires more cash to start |
Easier to finance |
Greater variety of repair parts, fixtures, appliances, etc. |
More commonality of parts, fixtures, appliances, etc. |
Harder to finance |
Allows diversification of type and location |
May required multiple documentation formats |
Common documentation |
Puts your "eggs in fewer baskets" |
x |
Higher operating costs per unit, including insurance |
Lower operating costs per unit, including insurance |
x |
x |
More bookkeeping & income tax return preparation |
Simpler bookkeeping & income tax return prep |
x |
x |
Higher cost for outside management |
Lower cost for outside management |
x |
xx |
Many states do not allow a tenant of one property to be involved in management of another |
Possible help from a "resident manager" |
x |
Although the above table indicates that a few large properties would always be preferable to many small properties, such is not necessarily the case. Specific pros of smaller properties could, under certain circumstances, be more important than the cons. For example, diversification could be the primary consideration if one were concerned about the future economic future of the area. More importantly, a beginning investor will not usually be able to start with large properties.
For detailed discussions of the above differences and others, click here to go to RHOL Member Webs.
Now examine the pros and cons of commercial vs. residential income properties.
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