There are several types of properties to choose from when investing in real estate, but how do I know which are the best types of properties to turn into rental properties and generate profits?
Investing in rental properties is one of the most popular types of investments among beginner real estate investors.
But how can a beginner real estate investor decide on the best types of properties for turning into rental properties, especially if their investment strategy of choice includes short-term rentals?
In this article, I will be talking about some of the most popular types of properties for turning into short-term rentals to generate a rental income.
The types of properties that I will be focusing on will differ from one another in terms of their location, their seasonality, their overall year-round performance, and their maintenance and running costs. The purpose is to give beginner real estate investors a better idea of what to expect when considering the different types of properties that they can choose from when searching for rental properties for sale.
The Best Types of Properties for Short-Term Rental Strategies
There are several types of rental properties that are commonly being used as short-term rentals when investing in real estate.
However, experienced real estate investors know that not all types of rental properties are the same. Different properties require different levels or methods of rental property management in order to reach their potential as income producing assets.
Among all the different types of properties that can be turned into short-term rentals, these are the types that are most common in today’s real estate market, their advantages and disadvantages, and what qualities make them different from other types of rental properties.
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Seasonal Vacation Rentals
Vacation rentals are perhaps the most common type of rental properties that real estate investors have been purchasing.
This is because vacation rentals are somewhat straightforward in their performance, and they are almost always guaranteed to generate profits during certain times or seasons of the year.
Investing in vacation rentals has several advantages. But the most noticeable advantage and a main reason behind their popularity among millennials, in particular, is the duality of their use.
While most experienced and long-time investors would prefer to invest in properties that will generate the highest returns, millennials prefer properties that can generate profits for them, but that can also save them money and be used for other purposes.
Vacation rentals can save money by serving as an accommodation for their owner in case they decide to travel to that destination for leisure or with their family.
This gives the owners of vacation rentals a method for generating an extra income, as well as a secondary home that they can use as they please.
Additionally, vacation rentals are mostly found in locations that attract a high number of tourists and travelers, especially during certain seasons of the year, like the summer for example. If you’re looking for a vacation rental to purchase and turn into a short-term rental, make sure to pick a location that you would like to travel to and spend some vacation time at in order to utilize the property for your own leisure or a secondary residence.
The biggest disadvantage of vacation rentals, on the other hand, is their seasonality. This means that while vacation rentals might perform extremely well during their high season, their performance will most likely decline during the rest of the year, and you might struggle to generate profits from them during their low seasons.
This also means that if you do choose to reside in the property for some time during the high season, you will be effectively reducing the amount of money you can generate from the property by a considerable amount, so make sure to plan your finances accordingly.
Luxury homes are not the most common type of short-term rentals, especially among beginner real estate investors.
This is because luxury homes will typically require a fortune just to invest in them. Not only are luxury homes very expensive to purchase, but their maintenance and management costs can also be very high.
However, if you’re creative and you have confidence in your marketing and advertising skills, and if you have enough money to purchase the property, then luxury homes can be some of the most profitable types of properties in real estate investing.
Typically, you wouldn’t expect to rent out your luxury home that often during the year. However, when you do rent it out, you should be making a lot of money from it. Keep in mind that people who are looking to rent a luxury home are mostly people with lots of money, and they’re willing to pay extra if you provide them with a luxurious stay and a pleasant experience.
For this reason, owners of luxury homes will typically hire a top-notch property management company that provides an exceptional experience during the tenant’s stay, and that aims to win each and every tenant as a future customer and get them to recommend the property to their connections. This is where the success of luxury homes can be made, or where your investment might end up in complete failure.
Remember, though, that with luxury homes you’re taking the highest level of risk, and losing money on your investment might not allow you to invest in any other properties in the future.
Getaway homes are types of properties that are typically found in remote areas or in locations outside of cities.
As their name suggests, getaway homes are mostly used by people who are looking to get away from the busy life of the city and enjoy some quiet times in nature and away from other people.
While this might not be something that you’re personally looking for, in today’s world and busy life you will find several people who are looking for this type of rental properties.
There are a few aspects that you should keep in mind when it comes to investing in getaway homes as short-term rentals:
- Getaway homes are cheap to purchase, but should also be cheap to rent. So, don’t expect to generate a high amount of rental income from them.
- Also, don’t expect to pay a lot of money for maintaining and managing these properties. Since they typically use wood building materials, are small in size, and are the opposite of being luxurious, any repairs or maintenance that is needed will barely cost you a considerable amount of money.
- Tenants who want to rent a getaway home will often rent it for a few months, which is longer than the typical 2-7 nights of other short-term rentals. This means that getaway homes are middle-term rentals.
- Typically, you shouldn’t face any legal issues when renting out a getaway home since most legal issues with short-term rentals exist in areas with hotels and other accommodation options.
- Types of getaway homes include cabins, cottages, bungalows, and chalets.
As you can see, getaway homes are a unique type of rental properties that you can invest in, and I personally highly recommend them to beginner investors as they are cheap investments with very low levels of risk.
With all the different types of properties that are available for investing in real estate, beginner investors can sometimes struggle with choosing the one that suits their personality and investment goals.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
However, if you’re looking for a platform that can help you compare different types of properties and determine the ones that suit you best, make sure to check out Mashvisor – a real estate analytics platform that can help you find, analyze, and compare investment properties anywhere in the US to determine their investment potential and profitability.