What Are the Best Real Estate Investments?: Rental Properties

 

When it comes to investing in real estate, there are numerous strategies to choose from. These include REITs, fix and flip, wholesaling real estate, BRRRR method, traditional rental properties, Airbnb rentals, and crowdfunding. But the big question is: What are the best real estate investments? Without a doubt, the best real estate investments are rental properties.

This article will explore the pros of owning rentals, different types of rental properties, and how to choose the best investments.

Benefits of buying rental property (or why rental properties are the best real estate investments)

Owning rental property comes with a wide range of advantages. Here are some reasons why you should consider becoming a landlord or Airbnb host:

• Hedge against inflation – Rents and home prices usually go up or down in direct proportion to the rate of inflation. This makes rental property investment the best real estate investments for keeping inflation at bay.
• Passive income – If your investment properties have a good occupancy rate, you can enjoy a steady stream of income on a monthly basis. If you hire a professional rental property management company, you can easily make this rental income passive. Such passive income can be especially useful for a real estate investor during retirement.
• Appreciation – Besides receiving a steady income from rent collected, landlords also benefit from the appreciation of their cash flow investments. This means that the value of the best real estate investments typically increases over time.
• Tax benefits – Landlords are allowed to deduct expenses related to running a rental property. These include interest, insurance, repairs, property management fees, and depreciation.
• Equity – As you pay off your mortgage, you increase the equity on your home. Later on, you can use this equity to borrow a home equity loan for a second home.

Types of rental properties

When it comes to types of houses to invest in, there are several options to choose from. Here are the most common ones:

Single family homes (SFH)

As the name suggests, these are homes that have enough space to accommodate one family and are detached from other housing units. According to Statista, 44 million people lived in rented single family properties in the US housing market as of 2019. Though SFHs usually have a higher cost per unit, they have the potential to generate a good ROI for real estate investors, in terms of both cap rate and cash on cash return.

Multi family real estate

A multi family home is a property that comprises of more than one unit. Multi family properties with two, three, or four units are referred to as duplexes, triplexes, and quadplexes, respectively. Those with five or more units are considered apartment buildings.

The best thing about owning multi family homes is that you can enjoy a steady cash flow from the multiple housing units. However, the greatest downside is the upfront cost to buy them. Savvy real estate investors use the house hacking strategy when buying multi family properties.

Condos and townhomes

Condos and townhomes are privately-owned housing units within a community or a residential building. Homeowners share amenities like pools, lawns, gyms, and club houses. One major benefit of owning a condo or a townhouse is that you don’t have to worry about the maintenance of the exterior. The homeowners association (HOA) takes care of things like snow removal, lawn care, and repairs to communal amenities. However, the HOA rules and fees charged can be very restrictive and can even prevent certain types of rental properties. So you should study the HOA regulations carefully before choosing a condo or a townhome for your real estate investing endeavor.

How to choose a rental property for investment

Simply buying rental property does not guarantee success in the real estate business. You need to know where to invest and what kind of houses to buy.

Here is how you should go about choosing the most profitable investment property for sale:

1. Conduct a neighborhood analysis

When evaluating a neighborhood, these are some of the things to look at:

• Amenities – A good neighborhood should have important amenities like shops, good schools, restaurants, parks, medical facilities, and grocery stores. Tenants tend to look for homes that are in close proximity to such amenities.
• Crime rate – For most tenants, security is a major consideration when looking for a place to stay. Before buying property, be sure to research the crime rate of the area.
• Job growth – When a neighborhood has a high rate of employment, there will also be an increasing demand for rental property, and tenants will be able to pay rent on time.
• Accessibility – Tenants want to live in a place where they can easily shuttle to and from school or work. Therefore, be sure to invest in an area with convenient access to public transportation and major roads.
• Return on investment – You want to buy the best real estate investments in a neighborhood with the highest potential for profits. The Mashvisor real estate heatmap will help you compare different areas using metrics like listing price, rental income, cash on cash return, and Airbnb occupancy rate.

2. Find the best properties

Once you’ve identified a great neighborhood for your preferred rental strategy (Airbnb vs traditional), you can find the best real estate investments for sale on the Mashvisor real estate investment software platform. Properties available on this platform include MLS listings as well as foreclosures, short sale homes, auctioned homes, bank-owned homes, and even some off market properties listed by other users. You can narrow down your search using filters like location, budget, type of property, expected rental income, and expected return on investment.

3. Conduct a rental property analysis

Investment property analysis will show you how profitable a rental home is likely to be. Mashvisor’s rental property calculator uses machine-learning algorithms and predictive analytics to provide key metrics like rental income, rental expenses, occupancy rate, cash flow, cash on cash return, and cap rate.

Best places to invest in real estate

Now that you know that rental properties comprise the best real estate investments, it’s time to talk about where you should buy a traditional or Airbnb investment property this year. Based on Mashvisor’s analysis of comprehensive real estate data, here are the hottest real estate markets in the US right now. These locations have been picked based on the highest cash on cash return.

Where to invest in traditional rental property

1. Butler Township, Pennsylvania

• Median Property Price: $64,900
• Price per Square Foot: N/A
• Price to Rent Ratio: 8
• Monthly Traditional Rental Income: $680
• Traditional Cash on Cash Return: 8.29%

2. Eight Mile, Alabama

• Median Property Price: 143,950
• Price per Square Foot: $ 89
• Price to Rent Ratio: 10
• Monthly Traditional Rental Income: $1,158
• Traditional Cash on Cash Return: 6.76%

3. Marion, Indiana

• Median Property Price: $79,283
• Price per Square Foot: $53
• Price to Rent Ratio: 8
• Monthly Traditional Rental Income: $799
• Traditional Cash on Cash Return: 6.69%

4. Gary, Indiana

• Median Property Price: $134,650
• Price per Square Foot: $89
• Price to Rent Ratio: 12
• Monthly Traditional Rental Income: $934
• Traditional Cash on Cash Return: 6.17%

5. Camden, New Jersey

• Median Property Price: $142,220
• Price per Square Foot: $114
• Price to Rent Ratio: 10
• Monthly Traditional Rental Income: $1,244
• Traditional Cash on Cash Return: 5.90%

Where to invest in Airbnb investment property

1. Wakefield, Massachusetts

• Median Property Price: $639,950
• Price per Square Foot: $306
• Average Airbnb Daily Rate: $195
• Monthly Airbnb Rental Income: $6,955
• Airbnb Cash on Cash Return: 9.23%
• Airbnb Occupancy Rate: 66.26%

2. Beaumont, Texas

• Median Property Price: $288,284
• Price per Square Foot: $127
• Average Airbnb Daily Rate: $114
• Monthly Airbnb Rental Income: $2,525
• Airbnb Cash on Cash Return: 8.45%
• Airbnb Occupancy Rate: 51.39%

3. Toledo, Ohio

• Median Property Price: $108,000
• Price per Square Foot $86
• Average Airbnb Daily Rate: $106
• Monthly Airbnb Rental Income: $1,816
• Airbnb Cash on Cash Return: 8.08%
• Airbnb Occupancy Rate: 63.67%

4. Covington, Georgia

• Median Property Price: $288,072
• Price per Square Foot: N/A
• Average Airbnb Daily Rate: $166
• Monthly Airbnb Rental Income: $3,476
• Airbnb Cash on Cash Return: 8.07%
• Airbnb Occupancy Rate: 63.81%

5. Levittown, Pennsylvania

• Median Property Price: $304,590
• Price per Square Foot: $220
• Average Airbnb Daily Rate: $110
• Monthly Airbnb Rental Income: $3,569
• Airbnb Cash on Cash Return: 8.04%
• Airbnb Occupancy Rate: 77.50%

Conclusion: Best Real Estate Investments

Wondering how to invest in real estate? Traditional or Airbnb rental properties are the best real estate investments for all the reasons listed above. Wondering how to get started in real estate? Read the best real estate books and the top real estate blog articles to learn all you need to know about real estate investing for beginners. Attend physical and virtual real estate events to interact with other investors. Finally, be sure to use the Mashvisor real estate investment tools to find and analyze the best investments right now.