When it comes to investing in rental properties, the options can feel overwhelming. But don’t worry! Let’s break down the seven different types of rental property and help you figure out which one might be the best fit for you.
I love talking about the different types of rental properties because there is no one path that every investor has to follow. The goal is to figure out which one of these types of properties aligns best with your goals as an investor. We’ve invested in 6 out of the 7 types types of rentals below so we have done the learning for you and are eager to share!
1. Single-Family Houses
Single-family homes are a classic choice for many investors. They’re typically easier to manage and appeal to a broad range of tenants—families, young professionals, and retirees alike. Plus, they often appreciate in value over time.
There is certainly no shortage of these types of properties and can vary in terms of size to fit your needs. Just keep in mind, if your tenant moves out, you’ll be covering the entire mortgage until you find a new renter.
Pros: They tend to be a more stable investment. The tenant pool is going to be larger and you have a little more control over the type of tenant you are going after based off of the property you buy. For instance, if you buy a smaller home this is going to appeal to perhaps a single professional or a newly married couple or even just two young friends sharing the rent. Where as if you buy a larger home in a suburban neighborhood, you’re more likely renting to a family.
So when you think about the types of renters you’d like to deal with matching the property to those types of renters will help.
Cons: If a tenant moves out and there is some lag in vacancy the mortgage will be on you to pay. There is more on-going upkeep (lawn care, snow removal, etc.) with single family homes that you will have to decide whether you will cover as the landlord or if you will pass that on to the tenant.
2. Condos
Condos can be a great option if you’re looking for something low-maintenance. They usually come with homeowners’ associations (HOAs) that handle landscaping and common area upkeep. They tend to be a smaller property so this helps with maintenance and repairs.
Our very first investment property was a 2 bedroom/2 bath condo. It was perfect for us for getting our feet wet as investors.
Pros: Smaller in size generally so this helps with maintenance and repairs. You are only responsible for repairs on the inside of your unit. Roofs and exterior parts are maintained by the associations.
Cons: Condos have condo association fees can cut into your profits, so make sure to factor that in when calculating your potential returns. These fees can only be raised with little notice and special fees can sometimes incur if there is a bigger project that needs to be completed on-site.
We found that our turnover was a litter higher in our condos as we were renting to typically young professionals who only stayed about a year before they were ready to move to something bigger.
Financing with condos can also be a little tricky. Some condo associations will have rules about how many of the units are required to be owner occupied units and how many can be rented out. This can sometimes impact financing and the types of loan products available to you to use.
Be sure to read through the association documents BEFORE you invest in a condo so you are informed!
3. Townhomes
Townhomes offer a blend of single-family homes and condos. They usually have more space than condos and come with a bit of a yard, but they often share walls with neighbors. This can be attractive for families or young professionals. The main difference, in many townhome associations, is that with townhome you are in charge of repairs for the exterior of your unit. So for instance if you have an issue with siding or your roof many townhome association will have that on the owner not the association to repair.
The Pros and Cons are pretty similar to the condos so be sure to read through the association documents BEFORE you invest to ensure you don’t have any surprises along the way.
When we first started investing our first 5 rentals were a mix of condos and townhomes and we really enjoyed them as rentals. They were low maintenance, offered a good tenant pool and allowed us to learn a lot with taking on a larger single family home or multi-unit that felt a little overwhelming when getting started.
4. Mobile Home Parks
Investing in mobile home parks can be a lucrative option if you’re looking for something different. These parks can provide steady income with lower maintenance costs since tenants typically own their homes.
This is the one type of rental (from this list) that we have not invested in; however, depending on your goals and the area you live this could be a good option for you.
With mobile home parks, typically the tenants own their mobile home and rent the lot or space from you each month.
The downside? You’ll need to navigate the unique challenges of managing the park and dealing with local regulations.
Pros: Mobile home parks can provide consistent cash flow, as tenants often own their homes and pay lot rents monthly. Since tenants are responsible for their mobile homes, maintenance and repair costs for the park itself are generally lower.
Affordable housing options are in high demand, making mobile home parks an attractive investment in many markets. Investors can increase revenue by improving amenities, raising rents, or filling vacant lots.
Cons: Managing a mobile home park can be more complex than single-family homes due to dealing with multiple tenants and local regulations. Zoning laws and local regulations can create hurdles in park operation and expansion.
Mobile home parks can carry a stigma, which may deter potential investors or tenants. Acquiring a mobile home park can require significant capital upfront, making it a larger investment compared to other rental types. Evaluating these pros and cons can help you decide if investing in mobile home parks aligns with your financial goals and risk tolerance.
5. Vacation Rentals
With platforms like Airbnb and Vrbo, vacation rentals have surged in popularity. They can yield high returns, especially in tourist hotspots. However, they require more hands-on management and can be seasonal. If you’re up for the hustle and bustle of short-term rentals, this could be a fun venture.
We own two vacation rentals in two different states. One is a large oceanfront vacation home in North Carolina and the other is large lake front/ski access vacation home in Maryland.
This is another type of rental that we have loved owning and investing in. Both properties have allowed us the ability to rent nearly year round to vacationers and enabled our own family to enjoy the homes when we’ve been able to visit.
Pros: These types of properties can offer a lucrative return; however it did take us a multiple years of looking at properties and running numbers to find an oceanfront rental that actually yielded a return. The properties are usually well maintained from tenants as they are higher end vacation rentals which bring in that type of tenant demographic.
These properties, for us, are totally hands off in terms of management. We hired local property management companies to manage these and so there is no day to day handling of these for us, which we love. If you were to rent through AirBnB, you would want to make sure that you get processes in place for cleaning, tenant turn-around, maintenance and those sorts of things so that you aren’t constantly handling the day to day.
Cons: They are hard to buy as a new investor. If you are buying in a tourist area the home values are probably pretty high requiring a higher down payment amount. We didn’t buy our first vacation rental until 5 years into our investing journey.
There is more maintenance for these homes. Because they are heavily rented, the wear and tear on the properties is much higher than having one family rent a home for a year. We’ve had to replace HVAC systems, re-paint areas of homes and replace some flooring faster than you would with a regular single family rental because of the constant turnover of tenants. One 5 bedroom vacation rental may have hundreds of people in the home in the course of a year which in turn requires more cosmetic upkeep.
6. Multi-Units
Multi-unit properties, like duplexes or triplexes, allow you to generate income from multiple tenants in one location. This can be a great way to increase cash flow. This also can be a great way for a brand new investors to purchase a rental property with less money down through the concept of house hacking. With house hacking, you purchase a multi-unit and live in one of the units and rent out the others. This allows you to finance the property as an owner occupant which requires less money down.
All while the tenant(s) from the other unit(s) are helping you pay the mortgage. Once you’ve lived there for about a year, you could move out and be renting out all units.
Just remember, managing multiple tenants means more responsibilities. If you’re ready to tackle that, multi-units might be your ticket to success!
Pros: Risk is diversified with multi-units because if you have a vacant unit your other units will continue to bring in rental income helping offset cost. Your cash flow has the chance to be higher with this type of rental because you are renting to multiple parties. There is the ability for these types of properties to appreciate faster due to income potential.
Cons: Managing multiple tenants can be time-consuming and may require more hands-on involvement or professional property management. Tenant turnover can be more frequent, leading to additional costs and potential vacancies. With more units, you may face more frequent maintenance issues, which can be challenging to manage.
7. Student Rentals
If you live near a college or university, student rentals can be a solid investment. Students often need housing, and if you’re close to campus, you’ll have a steady stream of tenants. Just be prepared for some unique challenges, like high turnover rates and the need for regular maintenance.
Pros: The income you can earn from a property marked as a student rental is higher than what you can earn from a single family living there. This mostly happens because you rent by room instead of by total property. If you’re location is good, then you will have a steady tenant pool as students continue to come each year and need housing.
Cons: No doubt our student rental tenants are some of our needier tenants. Why? In most cases, these kids have never lived on their own so the calls you will get our sometimes ones that might seem incredibly trivial and there may be more calls than you would get from a tenant who’s more seasoned as a renter.
The wear and tear on the property can be higher depending on the group. We’ve had students move out and the unit looked spotless and we’ve had students move out and leave the tub nearly black. Having move out systems in place that puts pressure on the students to leave the properties clean is important.
Choosing the right type of rental property depends on your investment goals, the time you want to dedicate, and your risk tolerance.
Each type has its pros and cons, so take your time to evaluate what aligns best with your lifestyle and financial goals. Happy investing!
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