The properties that make the best rentals generally fall just below the typical median priced home. There are several reasons for this. For starters, this is a home in which the typical renter can afford. By simply being available to a bigger group of people, this will keep vacancy loss costs lower. In addition, most renters will be able to afford their payments and remain in the home longer.
The bigger the home, the more attractive it is to another buyer rather than a renter. Despite having better resale value, more expensive homes don’t necessarily make a good income property. Since most people who live in these home prefer being home owners, they are less likely to renew their lease. If the property will not be an investment house and file be your first purcahse than you can read more about steps of buying your first home here.
Another big problem with more expensive homes is that there are more costs involved. They tend to be larger and contain more fixtures. They tend to consist of more repairs and maintenance. This is especially the case each time a tenant moves out. If you get an irresponsible tenant, they can do considerable damage. It’s not unheard of to have to pump thousands of dollars into the property after evicting a bad tenant.
It can often be a challenge to balance rental value with resale value. Cheaper homes do not appreciate as much and don’t sell as fast. This is partly because it appeals more to other investors than other home owners. Obviously, another investor is likely to be bargain hunting. Many investors will pass until they find the perfect deal. Since they will not be living in the property themselves, an investor will treat a property as a commodity.
Condos and townhouses are at the opposite end of the spectrum from expensive homes. They typically offer good cash flow. However, being able to sell a property in a weak market is very difficult. Banks and lenders don’t want to finance them. Also, the price is so low that the fixed costs of financing (if you can get it) are so high in relation to the property that is generally isn’t worth it. For an investor who has cash and is just looking for cash flow, condos can be a great investment. Despite the obvious drawbacks, they have far less costs regarding repairs and maintenance between tenants. For sure you have to know how to estimate closing cost.
That being said, the type of property you choose to invest in matters greatly. Most investors should seek a balance by choosing properties that are good quality that still make good rentals. This is where you stand to make money on rental income as well as long term price appreciation.
