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Rental Properties and Investing

Rental properties make up an investment category that contains a variety of types of properties. Owning and managing them can be a sideline, or it can be a full time occupation. Here are some of the main types of rental properties that people invest in.

1. Single Family Rentals

Buying a house to rent out is perhaps the easiest type of rental property investment to get into. You have many financing options, and you probably won’t have to come up with a huge down payment. If you buy a rental house during times of rising home prices, you can build up your equity quickly, and sometimes you can cover your mortgage payments with the rents you receive. Another great advantage of buying single family rentals is that they can be sold to another investor or to someone who wants to buy a house to live in, which makes it easier to sell the property should you want to. If you want to have a rental property as a source of passive income without having to devote a lot of hands-on time to it, then single family rentals are probably your best bet. But if you want to make rental incomes your sole source of income, you should probably consider buying an apartment building with multiple units for ease of management.

2. Apartment Buildings

If you want to make your primary income from rentals, then apartment buildings are better than a group of single family dwellings. They can be harder to finance, and you’ll be required to come up with a larger down payment, but you can expect good cash flow as long as you have good renters. You can increase your income by raising the rents if you have to, and if one tenant moves out, you don’t lose all your rental income the way you would with a single family dwelling that you rent.

3. Duplexes and Triplexes

These are sort of in between single family rental dwellings and apartment buildings. If they have fewer than five units, you can finance them as you would a home. Some people buy these in order to live in one unit and rent out the others, while building equity in the entire property. These can take a while to turn a profit, but if you’re in it for the long term, duplexes and triplexes can be worth the investment.

4. Low Income Housing

Cash flow with low income housing can be good, but low income housing comes with its own set of problems, such as having to deal with late payments more often. Low income housing is hard to do as a sideline business. It should be your primary business, or part of a comprehensive portfolio of rental properties. Generally, low income housing has a higher rent to property value ratio compared to, say, a nice 3-bedroom rental home. You’ll usually pay less with insurance and property taxes with low income housing too.

There are other types of rental properties, too, such as vacation rentals, but these are harder to make a profit with. If you want to start investing in rental properties, start small, with a single family dwelling or duplex to get an idea of the kind of time and money investment you’ll have to make to turn a profit.