Profitable Types of Real Estate Investment 2023

Investors have several great investment opportunities to choose from. All you need to know is where to find the best investment property for you.

One of the best features of real estate investing is its vast diversity. Fix-and-flips, wholesaling, and rental properties are some of the best options real estate can offer.

Table of Contents

5 Types of Real Estate Investment
What Is the Most Profitable Type of Real Estate Investment for 2023?
How to Find the Most Profitable Investments for 2023
Top 20 Cities for Long Term and Short Term Rental Investment in 2023

But what type of real estate is the most profitable for 2023?

The answer is quite simple–investing in rental properties is the best investment for 2023. More specifically, the best types of real estate investment are long term and short term rental properties.

Why are such types of real estate properties the most profitable? How can you find the most profitable investment properties for 2023? Read on to learn about the best investment property for your preferred strategy.

5 Types of Real Estate Investment

Investing in real estate is one of the most efficient ways to diversify your portfolio and build wealth and equity. It is why many investors look for opportunities to invest in real estate. There are different ways to invest in real estate, but not all of them may apply to you. You just need to figure out which one is the best for you.

Here are a few types of real estate investment that you can consider:

1. Rental Properties

One of the most common (and financially rewarding) real estate investments is rental properties. They work exceptionally well for those who want passive income and positive cash flow.

There are two main types of rental properties: long term and short term rentals (also known as vacation rental properties).

Long term rentals are properties that are rented out for a period of at least a year. Short term rentals, on the other hand, are rented out for a period of a few days or weeks. The latter is especially popular among tourists looking for a more comfortable and affordable alternative to hotels and resorts.

And then there’s another type of rental property that became more popular during the pandemic: the mid-term rental. Mid-term rentals are rented out for several weeks to a few months, depending on the guest. The rental period is a little longer than vacation rentals but is much shorter than long term rentals.

Plenty of real estate investors buy properties to convert into rentals because they give them an extra income source. The most important thing to take note of when buying a rental property is to make sure that its location is profitable for your preferred rental strategy. Whether it’s a long term rental or a vacation rental, you need to perform due diligence to ensure success.

To find the best rental properties in any location of your choice, click here.

Pro Tip When Investing in Rental Properties

In most cases, since investing in rental properties is expensive, real estate investors take to lenders to apply for loans to buy an investment property.

When shopping for a loan, make sure to check out several lenders and what they offer. Resist the urge to settle for the first lender you meet. Remember that once you take out a loan to buy an investment property, you are stuck with mortgage rates for several years.

Current mortgage rates are hitting 7.16% on a 30-year fixed-rate mortgage. Even if you decide to go with a 15-year fixed loan, mortgage rates are still high at 6.49%. Given the higher rates today, you need to be wiser with your decisions. Due diligence is vital.

2. House Flipping

Another great way of investing in real estate and getting a good return on your investment is the fix-and-flip strategy or house flipping.

Typically, investors buy distressed or undervalued properties to rehabilitate and resell at a profit. The return on investment on a fix-and-flip can be quite lucrative. The only downside is you won’t know how long the property will sit on the market before it sells.

House flipping will also cost you a greater amount of money compared to a rental property. In most cases, when you buy a rental property, you only need to make the necessary repairs and updates to make sure the property is within the local housing standards.

House flipping is a bit different. If you want to make a decent enough profit on your investment, you will need to go the extra mile to make the property attractive to homebuyers.

3. Real Estate Investment Groups (REIGs)

The next type of real estate investment is Real Estate Investment Groups or REIGs. REIGs are the best option for investors who want to get into the real estate investing game without the hassles of maintaining an actual property. All you need is access to funds and a capital cushion.

REIGs are like mutual funds. The only difference is they invest in rental properties. Typically, REIGs buy rental properties, such as apartment buildings and condos, and invite investors to purchase them through the company.

An individual investor may own multiple rental properties while the company takes care of the management and administration of the properties. In exchange for their property management services, REIGs take a small percentage of the monthly rental income.

4. Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts, or REITs, are quite similar to REIGs with a small difference. REITs are companies that own different types of income properties, such as commercial buildings, apartments, hospitals, shopping centers, warehouses, and other similar structures. They are basically companies that own or finance income-generating properties.

In 1960, the US Congress created REITs to give everyone a chance to invest in income-producing real estate through buying and selling on major exchanges like stocks. Investors in REITs receive regular dividends, making it a solid investment for investors who wish to realize a regular income.

Another benefit of REITs is they are highly liquid. It means you don’t need any realtor or title transfer to cash out your investment.

5. Online Real Estate Platforms

Those who want to get a piece of the real estate action but don’t have enough capital to buy an actual property can consider online real estate platforms. Also known as real estate crowdfunding, such platforms allow individual investors to become co-investors in bigger commercial or residential real estate deals.

While it will still require a certain amount of capital, it is not as expensive as a typical down payment on a property. The lower (and much more affordable) capital makes real estate crowdfunding very attractive to investors who cannot afford to buy real estate.

What Is the Most Profitable Type of Real Estate Investment for 2023?

The quick answer to this question is rental properties.

Long term and short term rental properties are the most profitable investments for many shared reasons. Here are the five main reasons why rental properties are the most profitable types of real estate investment:

1. Positive Cash Flow and High Return on Investment

When you invest in either long term rental properties or short term rentals, you have the same goal: to achieve positive cash flow and a high return on investment.

What is positive cash flow? Cash flow is the difference between rental income and expenses. Positive cash flow is when the difference is positive or a net gain. Negative cash flow, on the other hand, is a net loss. Therefore, positive cash flow properties are rental properties that generate a net profit.

Investing in rental properties also yields a high return on investment. Return on investment (ROI) is measured in different ways using real estate metrics like cash on cash return and cap rate.

ROI lets investors know how much money they will earn, taking into consideration the initial investment and different property expenses. Properties with a high ROI are essentially the most profitable investments.

Long term and short term rental properties are the best types of real estate investment because you can earn monthly positive cash flow and a high ROI.

Investing in rental properties delivers consistent and substantial profit. It tends to be truer for a short term rental investment property than a long term rentals in most real estate markets. It is because short term rental income is usually higher.

2. Real Estate Appreciation

An investment rental property also benefits from appreciation. Real estate appreciation refers to an increase in property value over time. Appreciation is an excellent form of profit for a couple of reasons.

Firstly, when an investment property appreciates, its selling price rises. With an increased selling price, sellers can make a good ROI when they put the property back on the market for sale.

Secondly, when paired with a cash flow rental property, appreciation makes the investment much more profitable. The real estate appreciation investment strategy, referred to as the buy-and-hold strategy, is the top method of investing in long term and short term rentals.

In short, appreciation is another reason why rental properties are the best type of real estate investment.

3. Tax Benefits

Investing for income with rental properties yields another profitable benefit. By owning a long term and long and short term rental, investors are eligible for tax benefits.

Tax deductions are the most common form of such benefits, and they range widely. However, the key theme among them is that any expenses associated with investment activity can be deducted. Common examples include repair costs, depreciation, insurance premiums, and mortgage payments.

Tax benefits may not be the primary reason for investing in rental properties to some. However, they act as a welcome cherry on top for investors. Therefore, tax benefits bolster the case that rental properties are the best type of real estate investment.

Another form of tax benefit comes to real estate investors who invest in opportunity zones. Learn more here: How to Invest in Opportunity Zones.

4. Active or Passive Income

Another reason why rentals are the best type of real estate investment is their flexibility. Many investments are rigid when it comes to the required commitment. By investing in rental properties, however, investors are free to be as involved in the investment as they want.

Short-term and residential income properties, for instance, can be active or passive real estate investments.

A full-time commitment, including investing and maintaining, is referred to as active real estate investing. Passive real estate investing, on the other hand, doesn’t require as much effort. Passive investors usually hire property managers to maintain the income property.

With different approaches to rental properties, investors can participate as they see fit and reap the rewards.

5. Choice of Real Estate Rental Strategy

The diversity of investing in rental properties adds to its immense profitability. As we’ve discussed, the best type of real estate investment property is both long term and short term rentals. You can choose whichever you want based on your location and personal preferences.

Long term rental properties are the most common residential income properties. Their consistent rental occupancy and income make them worthwhile investments.

On the other hand, the short term rental strategy continues to become more popular as one of the best investment strategies. In areas with lenient regulations and tourism, short term rental properties are seeing massive success.

How to Find the Most Profitable Investments for 2023

We’ve talked about why rental properties are the best types of real estate investment for 2023. Even so, not every rental property for sale in the US housing market will be the best.

So how can you find the most profitable investments?

The answer is with Mashvisor’s real estate investment tools! While Mashvisor offers an array of tools, let’s take a look at the two you will need: the heatmap analysis tool and the investment property calculator.

Heatmap Analysis Tool

Mashvisor’s heatmap analysis tool is a must-have for finding the best types of real estate investment. A heatmap is a tool used to perform a neighborhood analysis. In other words, a heatmap analyzes a specific investment location.

Mashvisor’s heatmap presents its long term and short term data in a color-coded visual form. As the heatmap is interactive, it allows real estate investors to analyze a location using specific property filters. The filters include listing price, rental income, cash on cash return, and short term rental occupancy rate.

By using Mashvisor’s heatmap analysis tool, investors can find neighborhoods with the most profitable properties for 2023.

Want to try Mashvisor’s real estate heatmap? Click here.

Best Investment Property: Heatmap Analysis Tool

Mashvisor’s heatmap analysis tool gives a quick overview on which parts of a city are likely to have the best investment property.

Neighborhood Analytics

Another tool that Mashvisor offers its users is access to the most accurate and realistic neighborhood analytics. This feature helps users find the most ideal location for an investment property.

As a tool, you can check out any neighborhood in all 50 states and see the actual market numbers for the following:

Average cash on cash return for both long and short term rental properties
Average monthly rental income for both rental property types
Average cap rate on long and short term rentals
Median property price

Knowing what the numbers are in a particular neighborhood will give you a better insight into how profitable an area is for your preferred rental strategy.

To learn more about how we will help you make faster and smarter real estate investment decisions, click here.

Investment Property Calculator

Before settling to buy short term rental property or long term rental property, the real estate investor needs to analyze the property itself. With Mashvisor’s investment property calculator, it can be done in a matter of minutes.

An investment property calculator is used to perform an investment property analysis. If you wish to invest in a short term rental, this short term rental calculator computes data for properties and allows you to compare both rental strategies to see which is more profitable.

Above all, Mashvisor’s calculator estimates property expenses and profitability metrics. Like the heatmap, the investment property calculator is interactive. It allows investors to understand what is required to maximize a property’s profitability.

To start searching for the most profitable investments, click here to start your FREE trial with Mashvisor’s investment property cash flow calculator!

Mashvisor’s investment property calculator will help you analyze a specific property for sale.

Top 20 Cities for Long Term and Short Term Rental Investment in 2023

Here, we will take a look at 20 locations that are ideal for investing in rental properties in 2023. We combed through Mashvisor’s October 2022 data to find the best locations for rental property investment.

We broke the list down into two categories, using the following criteria as our filters:

Long Term Rentals

Median property price of no more than $1,000,000
Minimum of 100 rental listings
Monthly rental income of at least $2,000
Monthly cash on cash return of no less than 2.00%
Price to rent ratio of 20 and above

Short Term Rentals

Median property price of no more than $1,000,000
Minimum of 100 rental listings
Monthly rental income of at least $2,000
Monthly cash on cash return of no less than 2.00%
Average occupancy rate of 50% and up

Each list has been ranked from the highest to the lowest cash on cash return.

10 Best Cities for Long Term Rental Investment in 2023

According to Mashvisor’s latest October 2022 location report, here are the ten best locations for long term rental property investment in 2023:

1. Vero Beach, FL

Median Property Price: $727,992
Average Price per Square Foot: $294
Days on Market: 91
Number of Long Term Rental Listings: 628
Monthly Long Term Rental Income: $2,618
Long Term Rental Cash on Cash Return: 4.26%
Long Term Rental Cap Rate: 4.37%
Price to Rent Ratio: 23
Walk Score: 78

2. Hallandale Beach, FL

Median Property Price: $728,539
Average Price per Square Foot: $415
Days on Market: 92
Number of Long Term Rental Listings: 642
Monthly Long Term Rental Income: $2,853
Long Term Rental Cash on Cash Return: 3.61%
Long Term Rental Cap Rate: 3.72%
Price to Rent Ratio: 21
Walk Score: 79

3. Stuart, FL

Median Property Price: $719,961
Average Price per Square Foot: $361
Days on Market: 68
Number of Long Term Rental Listings: 376
Monthly Long Term Rental Income: $2,931
Long Term Rental Cash on Cash Return: 3.57%
Long Term Rental Cap Rate: 3.62%
Price to Rent Ratio: 20
Walk Score: 42

4. Fountain Hills, AZ

Median Property Price: $885,044
Average Price per Square Foot: $359
Days on Market: 92
Number of Long Term Rental Listings: 122
Monthly Long Term Rental Income: $3,161
Long Term Rental Cash on Cash Return: 3.42%
Long Term Rental Cap Rate: 3.46%
Price to Rent Ratio: 23
Walk Score: 39

5. Dania Beach, FL

Median Property Price: $609,500
Average Price per Square Foot: $376
Days on Market: 63
Number of Long Term Rental Listings: 238
Monthly Long Term Rental Income: $2,404
Long Term Rental Cash on Cash Return: 3.37%
Long Term Rental Cap Rate: 3.45%
Price to Rent Ratio: 21
Walk Score: 86

6. North Miami, FL

Median Property Price: $829,727
Average Price per Square Foot: $392
Days on Market: 31
Number of Long Term Rental Listings: 248
Monthly Long Term Rental Income: $3,224
Long Term Rental Cash on Cash Return: 3.31%
Long Term Rental Cap Rate: 3.40%
Price to Rent Ratio: 21
Walk Score: 52

7. Riviera Beach, FL

Median Property Price: $810,151
Average Price per Square Foot: $404
Days on Market: 75
Number of Long Term Rental Listings: 281
Monthly Long Term Rental Income: $2,686
Long Term Rental Cash on Cash Return: 3.25%
Long Term Rental Cap Rate: 3.30%
Price to Rent Ratio: 25
Walk Score: 43

8. Williamsburg, VA

Median Property Price: $565,289
Average Price per Square Foot: $223
Days on Market: 62
Number of Long Term Rental Listings: 181
Monthly Long Term Rental Income: $2,139
Long Term Rental Cash on Cash Return: 3.23%
Long Term Rental Cap Rate: 3.31%
Price to Rent Ratio: 22
Walk Score: 81

9. Punta Gorda, FL

Median Property Price: $655,944
Average Price per Square Foot: $319
Days on Market: 100
Number of Long Term Rental Listings: 347
Monthly Long Term Rental Income: $2,719
Long Term Rental Cash on Cash Return: 3.21%
Long Term Rental Cap Rate: 3.25%
Price to Rent Ratio: 20
Walk Score: 14

10. Melbourne, FL

Median Property Price: $496,841
Average Price per Square Foot: $257
Days on Market: 64
Number of Long Term Rental Listings: 581
Monthly Long Term Rental Income: $2,054
Long Term Rental Cash on Cash Return: 3.18%
Long Term Rental Cap Rate: 3.26%
Price to Rent Ratio: 20
Walk Score: 73

To find the most profitable long term rental properties in any location of your choice, click here.

10 Best Cities for Short Term Rental Investment in 2023

Based on Mashvisor’s October 2022 data, the following places are ideal for short term rental investing in 2023:

1. Reading, OH

Median Property Price: $225,180
Average Price per Square Foot: $139
Days on Market: 40
Number of Short Term Rental Listings: 171
Monthly Short Term Rental Income: $2,874
Short Term Rental Cash on Cash Return: 7.85%
Short Term Rental Cap Rate: 8.14%
Short Term Rental Daily Rate: $117
Short Term Rental Occupancy Rate: 53%
Walk Score: 80

2. Schiller Park, IL

Median Property Price: $280,389
Average Price per Square Foot: $208
Days on Market: 54
Number of Short Term Rental Listings: 110
Monthly Short Term Rental Income: $3,853
Short Term Rental Cash on Cash Return: 7.85%
Short Term Rental Cap Rate: 8.10%
Short Term Rental Daily Rate: $155
Short Term Rental Occupancy Rate: 59%
Walk Score: 71

3. West Saint Paul, MN

Median Property Price: $268,376
Average Price per Square Foot: $169
Days on Market: 35
Number of Short Term Rental Listings: 320
Monthly Short Term Rental Income: $3,367
Short Term Rental Cash on Cash Return: 7.70%
Short Term Rental Cap Rate: 7.86%
Short Term Rental Daily Rate: $151
Short Term Rental Occupancy Rate: 62%
Walk Score: 75

4. Richmond Heights, OH

Median Property Price: $229,130
Average Price per Square Foot: $131
Days on Market: 108
Number of Short Term Rental Listings: 234
Monthly Short Term Rental Income: $2,958
Short Term Rental Cash on Cash Return: 7.45%
Short Term Rental Cap Rate: 7.63%
Short Term Rental Daily Rate: $136
Short Term Rental Occupancy Rate: 51%
Walk Score: 23

5. Bellwood, IL

Median Property Price: $257,900
Average Price per Square Foot: $198
Days on Market: 54
Number of Short Term Rental Listings: 152
Monthly Short Term Rental Income: $3,677
Short Term Rental Cash on Cash Return: 7.45%
Short Term Rental Cap Rate: 7.69%
Short Term Rental Daily Rate: $161
Short Term Rental Occupancy Rate: 64%
Walk Score: 82

6. Northlake, IL

Median Property Price: $304,667
Average Price per Square Foot: $205
Days on Market: 66
Number of Short Term Rental Listings: 100
Monthly Short Term Rental Income: $3,834
Short Term Rental Cash on Cash Return: 7.35%
Short Term Rental Cap Rate: 7.56%
Short Term Rental Daily Rate: $168
Short Term Rental Occupancy Rate: 57%
Walk Score: 33

7. Clawson, MI

Median Property Price: $256,732
Average Price per Square Foot: $219
Days on Market: 30
Number of Short Term Rental Listings: 298
Monthly Short Term Rental Income: $3,185
Short Term Rental Cash on Cash Return: 7.18%
Short Term Rental Cap Rate: 7.42%
Short Term Rental Daily Rate: $167
Short Term Rental Occupancy Rate: 52%
Walk Score: 69

8. Robbinsdale, MN

Median Property Price: $303,400
Average Price per Square Foot: $159
Days on Market: 36
Number of Short Term Rental Listings: 335
Monthly Short Term Rental Income: $3,387
Short Term Rental Cash on Cash Return: 6.94%
Short Term Rental Cap Rate: 7.13%
Short Term Rental Daily Rate: $166
Short Term Rental Occupancy Rate: 56%
Walk Score: 73

9. West Allis, WI

Median Property Price: $238,308
Average Price per Square Foot: $156
Days on Market: 23
Number of Short Term Rental Listings: 112
Monthly Short Term Rental Income: $2,437
Short Term Rental Cash on Cash Return: 6.86%
Short Term Rental Cap Rate: 7.05%
Short Term Rental Daily Rate: $119
Short Term Rental Occupancy Rate: 70%
Walk Score: 54

10. North College Hill, OH

Median Property Price: $190,121
Average Price per Square Foot: $135
Days on Market: 47
Number of Short Term Rental Listings: 124
Monthly Short Term Rental Income: $2,296
Short Term Rental Cash on Cash Return: 6.81%
Short Term Rental Cap Rate: 7.18%
Short Term Rental Daily Rate: $126
Short Term Rental Occupancy Rate: 52%
Walk Score: 74

To find the most profitable short term rental properties in any location of your choice, click here.

Get Your Hands on the Most Profitable Types of Real Estate Investment!

Rental investment properties are the best types of real estate investment. With their high profitability, they are unmatched.

However, before you set out to buy an investment property, you need to put in the work first. As we already pointed out earlier, due diligence is vital to the success of rental property investing. It may be the best investment property type but if you don’t pay attention to what the markets say, you may end up disappointed.

For the above reason, using a real estate platform like Mashvisor will work to your advantage. The platform offers investors the right tools and accurate data so they can make wiser investment decisions moving forward. You will never regret using such Mashvisor for rental property investing.

To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.

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The Most Profitable Types of Real Estate Investment for 2023