Real estate investing often becomes a second career for people who want to become their own bosses. Novice investors have a lot to learn, and one of the first things they must decide on is what kind of property makes the best rental.
Single-Family Home vs. Apartment Building
Learning about current market conditions and anticipated future trends are a major part of the calculation for purchasing an investment rental property. For example, the COVID-19 situation has generated increased interest in single-family dwellings for rent in suburban areas. The lower density and greater outdoor space of suburban, single-family rental homes has taken on a more urgent attractiveness for city dwellers who found themselves cooped up in apartment buildings during stay-at-home orders. Single-family homes also attract tenants who tend to stay put longer than renters in multifamily units do. Therefore, many new investment property owners are gravitating toward single-family homes to generate rental income.
On the other hand, apartment buildings or condominiums in multifamily developments mean collecting rent from more tenants. Multifamily buildings may provide greater cash flow and cost efficiencies because investors can purchase two or more units for what one single-family house in a good location might cost. Furthermore, landlords in some cities, such as Atlanta, have actually suffered less from unpaid rent than in other markets.
Still the number-one consideration with investment property, location largely determines the market for a rental property. Vibrant city centers with high-rise buildings attract a different demographic than a quiet suburban neighborhood primarily made up of owner-occupied, single-family homes.
Singles marry, and families grow—two-bedroom condominium units are increasing in popularity. For single-family homes, three bedrooms and two baths seems to be the sweet spot for middle-income renters. Large houses with four bedrooms or more are going to be more expensive, maintain, and rent, as tenants who can afford the rent and who need the space of larger rental homes aren’t as easy to find. Property taxes can be higher as well.
Parking, good schools, and proximity to shopping as well as to parks and recreational facilities matter to prospective tenants. Investors should research neighborhoods for good schools and a sense that the neighborhood is on the upswing. A low vacancy, low turnover rate, and gradually increasing rental prices that tenants are willing to pay are signs of a good type of property that makes the best rental and that may make a potentially profitable real estate investment.