Investment in a rental property is fairly straightforward – and desirable given the opportunity to generate income that offsets your monthly costs to own the asset. This makes it the perfect starting place for potential investors looking to get their feet wet and start a portfolio.
When considering a rental property investment you likely factored this decision against other forms of investing, such as stocks, where you’re left at the mercy of the performance of the companies and corporations you invest in. Or, commercial real estate investments, where your cash flow is contingent on businesses and franchises all doing their part to make money. Nice job getting this far!
While there are many different ways to invest in rental properties, the differences are emboldened by the characteristics of the homes themselves. Ultimately, you’d like the property to bring in a monthly income that amounts to more than what it costs to own the property on a monthly basis. This isn’t always a guarantee, so make sure to understand the assessed value of the property, not just the for sale price, as this will give you a more realistic idea of your costs, such as rental property taxes.
Single family homes remain as one of the most common rental properties as they are known for being easy to finance and easy to find tenants for. Small multifamily properties are conversely a bit more difficult to find and fill, but you can benefit by receiving multiple different rent payments from different tenants altogether.
This effectively splits and diversifies your income and may be a more secure option for those worried about vacancy issues. When you have a vacant unit in a small multifamily rental, you still have income from the other units to help contribute to your expenses. And, you should of course research neighborhood trends and consider how these could influence overall rentability.
An additional perk to consider when weighing the benefits of a multifamily property is that they also get conventional loans from banks, akin to a normal mortgage you would get on a single family rental.
Learn more about factoring in your costs with our budgeting tool on Estated Education.
The best strategy to employ when considering a rental investment is to be diligent about your planning, budgeting and research. Use the wealth of property and real estate data at your fingertips to help you choose a net positive cash flow property, which you can easily find for both single and multifamily properties. So get started today!