If one investment has withstood the test of time, it’s real estate. That’s why, no matter what the market looks like, it’s always one of the most popular investments in the US. Currently, there are over 48.5 million rental units in the US, with 16.7 million properties owned by individual investors.
If you’re interested in getting involved in real estate, it has a lower barrier of entry than you may think. Once you’re in, the sky is the limit! However, you need to know what type of investment is right for you. Let’s talk about the different types of rental properties and find out!
Types of Rental Properties
There are thousands of strategies and types of properties to help diversify your investment portfolio. However, these are the three main types of income properties you can choose from, based on your personal finances.
Single-Unit
Single units are the easiest to manage and easiest to market, as many tenants love the privacy that comes with a single-unit building. The one challenge with single units is finding the right rent prices to set. Once you make the down payment, you will have to find the right rent/mortgage ratio to charge if you want to earn a profit, and you’ll have to rely on one tenant to pay that difference.
Also, communication can be lacking between the tenant and landlord, which is bad for everybody. Take the time to stop by occasionally and see if everything is alright. If they don’t see you often enough, they may not tell you when something is wrong, which can lead to worsening conditions.
Single-family homes are becoming a serious force on the market. Since the start of the pandemic, single-family rentals are rapidly growing and are likely to outpace multi-family homes in the coming years for rental investments.
Multi-Unit
Multi-unit buildings have two to four living units for tenants, and they’re some of the most popular options for first-time investors. They’re a great way to live in the building and receive mortgage assistance from renters or diversify your income.
This way, when tenants leave and you need to fill vacancies, you’ll still have a steady cash flow. You will likely be taxed at a similar rate as a single-unit building, and it will be easier to find the right income/mortgage ratio.
Commercial Properties
In most cases, anything over 4 units will be considered a commercial property. Managing these is similar to managing a multi-family property, but they will be taxed at different rates. Commercial properties tend to have higher property taxes, but a greater income/payment ratio.
The main downside of commercial real estate is the cost, especially in major cities. Buying a commercial property in a city like Boston could run you tens of millions of dollars, which few investors have to spare. However, if you find one you can afford, then it can be very lucrative!
Investment Strategies
Now that you know the different types of properties, let’s talk about the different types of investment strategies to choose from. Keep in mind that you can easily apply these to any type of property mentioned above!
Turnkey Rental Properties
As opposed to fixer-uppers, turnkey investment properties are new or updated properties with existing tenants. All you have to do is “turn the key” and start earning!
This is a very popular option for investors, as it has the least hassle, and you can start earning income right away. However, it’s not for everyone. The main downside of turnkey investments is simple; they’re expensive.
While you will be able to generate revenue immediately, you will have to save up a lot for the initial down payment, especially in one of the more expensive regions in the country. If you can afford it, then this is often a great way to secure your investment income for the first couple of years without having to worry too much!
The BRRRR Method
This is an acronym for one of the most popular (and potentially most lucrative) real estate investment methods. It stands for buy, rehab, rent, refinance, repeat. In theory, it’s supposed to be the best strategy for maximizing the profitability of your real estate investments.
Of course, it doesn’t always work out that way in practice, as there are always risks in every investment. However, if you choose the right property and pull off the strategy as planned, it can turn 15 percent down into a real estate empire.
You have to start by buying the right property. It has to be salvageable, affordable, and in the right location. If you find that and buy it for a good deal, you then have to fix it up.
If you take out loans or have the money to put in the repairs, you can then rent it out. After that, you do a cash-out refinance on your mortgage, which will give you the funds you need to buy your next property and complete the cycle all over again.
There are plenty of options to choose from if you want to refinance a rental property or get a hard money loan for a down payment. Either way, anybody can get started investing in real estate.
If you decide you don’t want to keep renting it out or follow the BRRRR method, you will likely make a profit after fixing up the house. This is called “flipping”.
Choose Wisely
Now that you know the different types of rental properties and investment strategies, get started today with your portfolio diversification and boost your income! Real estate is one of the best investments around today, so start now and build your business. Choose the right property for your needs and stay up to date with our latest tips to get the most out of your investment!