Previously, I have written before about wanting to add rental properties to my portfolio. This would diversify my portfolio and provide for a new passive income stream.
I feel it is inevitable given how close I have come in the past. Coupled with how much disposable income and accessible credit I have accumulated.
Now, which form of rental property?
I write this post as an introduction to a reader poll of sorts to help me decide which avenue to proceed down based on your thoughts and experience.
The way I see it there are 3 distinct types of real estate on the table. Each with their own unique advantages and disadvantages. I will try to delineate them here based upon my own thought processes;
The biggest factor is what your own personal market looks like. Urban and rural will look very different.
These are my 3 rental properties options;
- The Multi Unit Complex. This is usually comes in the form of a duplex or four-plex. I like the four-plex because it is the most you can get and still stay with a conventional loan. Any more units and you need a jumbo loan.
- Pros – More units equals more rent for the same underlying infrastructure.
- Per unit, the lowest price for square feet and taxes.
- Added income streams like coin operated laundry.
- Cons – Probably need property management.
- Tenant turnover and higher chance of bad tenant.
- Seem to appreciate the slowest of all 3 types analyzed here.
2. The Single Family Home. This is the most readily available and varied in price and quality.
- Pros – Get a good family, steady rent and maybe they eventually buy.
- The house value will appreciate over time & you make money two ways.
- Probably easiest one to resell if the need/or the time arise.
- Cons – When in between tenants you loose any/all the money coming in.
- Late/or bad tenants cost you 2 months rent.
- One full set of responsibilities, only one rent coming in.
3. Vacation Rental. Higher end property in desirable location. People will pay to rent for shorter periods of time. However, this may be a riskier option.
- Pros – Higher value property, more desirable.
- You get to use it or let friends/family use it, great location remember.
- Likely has the best appreciation over time, big money on the back end.
- Cons – Rich people are needy and have high expectations.
- More money spent up front to purchase and make nice.
- If it doesn’t attract, you have high mortgage/taxes & no $ coming in.
In conclusion, who is the best girl to take to the dance?
I ended up going with a multi-unit building. It worked out great. My sister-n-law is one of my tenants. Moreover, I bought the building at a song. Lastly, I rehabbed the lower unit. Now, I sit back and collect rent.