If you’re ready to take the plunge into real estate investment by purchasing a rental property, you’ll need to consider which type of property is the best for you. Any rental property investment would be a worthwhile addition to your portfolio, but the type you choose will be dependent on your goals.
Keep reading for a breakdown of the most common types of rental properties and some tips for deciding where you should start.
Single-Family Rental House
When most people think of rental properties, they are likely thinking of single-family rentals. This is the type of real estate investment that involves a long-term rental agreement with a tenant that pays on a monthly basis. Property owners serve as landlords, often managing and maintaining their property themselves and using DIY solutions for repairs. This type of property investment allows landlords to build relationships with long-term tenants, earn a consistent monthly income, and save money by keeping their property in shape themselves.
However, this familiar format has its drawbacks. The landlord and tenant relationship can sometimes be stressed when rent is raised, leading to fewer opportunities for the owner to increase their earnings. Long-term tenants can also be nightmares, leaving serious damage behind that the landlord must address before another renter can move in. Vacancies pose another issue, as the property won’t make you any money without an active tenant.
The next type of rental property is the short-term vacation rental. You can list these properties on rental platforms like Airbnb or VRBO and charge variable nightly rates, offering more flexibility than long-term rentals with static fees. This type of rental property boasts a lot of freedom, allowing owners to list and unlist their properties, raise or lower rates, and come and go from their properties as they please.
While it’s nice to have a getaway on-hand that makes you money while you’re not vacationing there yourself, location can potentially cause issues. If you live far from your vacation property, you’ll have to hire out for upkeep. Cleaning services and repair and maintenance professionals can add significantly to your existing property costs. Further, rentals in vacation spots with dead or off seasons can face long periods of vacancy and cut down on your potential profits.
For the seasoned real estate investor, a large property investment like an apartment complex could offer an opportunity for more growth. A multi-family apartment building lessens the impact of vacancies because there will always be other tenants paying rent. Further, raising rental fees will be less detrimental to individual tenants because the increase can be spread amongst the entire building.
This type of rental property is a great investment for people who are already taking advantage of the real estate market and hope to scale up their rental business.
This type of property is another way for experienced investors to expand their rental business and diversify their portfolios. Mixed-use properties can house any combination of residential, commercial, office, and retail units. This type of rental property allows you to acquire prime real estate in growing communities that can be rented out to residential tenants or businesses. The best part of this type of property investment is that your property value will increase as the area around it develops.
As you can imagine, large apartment complexes and mixed-use properties are far more expensive than smaller rentals. While more experienced investors will be most likely to take advantage of them, don’t let your funds hold you back. You can seek out commercial loans for mixed-use property financing and get involved in this lucrative real estate trend early.
With these property types properly outlined, it should be easier to see which opportunities appeal to you and fit your goals. Whether you’re just starting out or you’re looking to move on to bigger real estate projects, there are plenty of great rental property investments available to you.