Types of Commercial Real Estate: (Part 1 of 6) Residential Investment Properties

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Residential assets are properties people can live in. Residential asset prices are influenced by the local supply of housing, GDP, employment, income levels, wage growth, inflation, interest rates, mortgage financing opportunities, and both regulatory and demographic trends. Residential assets are typically less affected by market conditions than other property types, as housing is consistently in high demand, irrespective of fluctuations in the economy.

These assets can be leased to multiple tenants across income groups, so the credit risk is well-diversified. However, residential leases are typically short (12-18 months on average), which creates more leasing pressure on the investor.

Sub-categories of residential properties available for investment include:

Traditional multifamily: Residential buildings with five or more units are considered multifamily housing. These assets are typically more expensive than other residential assets, but investors in multifamily assets can benefit from tax incentives and easier bank financing. Examples of commercial properties in this category include garden apartments (low-rise apartment complexes with shared outdoor space), five to 12-story mid-rise apartments, and high-rises (12+ stories) in sprawling urban centers.

Single-family residential (SFR): Residential properties with one to four units, ranging from a single house to a quadruplex, are included in the single-family residential category. Single-family complexes are generally larger in size than multifamily apartments, and they are commonly found in suburban locations. These assets typically require less property maintenance and capital expenditure.

Niche housing: Student housing, senior housing, assisted living facilities, and other small but fast-growing residential sectors that benefit from long-term demographic trends are considered niche housing. The nature of the tenant base typically leads to higher occupancy levels—and therefore higher yields—compared to traditional multifamily assets. For instance, due to limited on-campus housing options, full-time students, especially the growing cohort of internationally mobile students, typically seek affordable accommodations close to their universities for the entire academic year. This surging demand coupled with limited supply of beds around the world creates a positive rental growth outlook.

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