6 Types of Rental Investment Properties

Have you been shy when it comes to the commercial real estate market?  

Build your confidence with a look at six popular (and profitable) investment types. 

Need a little investment inspiration? 

This month, we’re going back to square one with a look at some of the best starter investment opportunities in America. The real estate scene is vast and complex, but there’s a handful of rental property types that have brought our clients tremendous success over the years. 

Now, it’s important to remember that nothing is guaranteed, and every investment comes with its own level of risk. Not to mention, market conditions in 2024 have made it very difficult—if not momentarily impossible—for some people to break into the commercial real estate scene. 

Don’t fret! Your rental goldmine is waiting to be discovered.   

The path to passive income

Everest borrowers continue to strike fantastic deals, pad their portfolios, and maximize their returns by following smart CRE strategies. Educating yourself about the different kinds of rental investments available is a great starting point. 

To prepare for today’s seminar, we’ve taken some widely-favored options from a few ‘best real estate rental investment properties’ lists for first-time investors. We’ve also consulted with Mr. David Glauber, one of Everest’s best and brightest loan officers, for some insider intuition. 

Our goal? Give you the good, the bad, and the (sometimes) ugly when it comes to these popular income-producing properties. 

So grab a notepad—some fascinating facts are coming your way! 

6 Kinds of Rental Investment Property Types

Multifamily Properties

What are they? 

Topping our list is the tried-and-true multifamily, which refers to any property that houses multiple families, couples, or roommates. This kind of investment can range from a simple residential duplex (two units) to a high-rise apartment building with hundreds of units for rent. 

What are the benefits? 

“Let’s start with the obvious: multifamily homes are the best rental investment,” says Mr. Glauber. “It really doesn’t matter how many units you have. In the majority of cases, multifamily properties give you the greatest return on your investment compared to other rental types. They’re also the easiest to get financing for, making it a no-brainer.”

Assuming it is located in a strong rental market, multifamily real estate is known for its predictable monthly cash flow, reliably low vacancy rates, and overall simplicity, as you can purchase multiple units with a single loan compared to single-family investment. There are also solid tax advantages, as you can deduct operating and marketing expenses, maintenance and repair costs, insurance premiums, among other common line items. 

And if your goal is passive income, you can easily hire an outside property management company to keep your multifamily running smoothly. 

Are there any drawbacks? 

Like any investment, multifamily real estate isn’t a fit for everyone! To start, expect to shell out more cash upfront to purchase the property. A large apartment building or complex—particularly in high-cost cities like New York—can easily fall in the multi-million dollar range. That’s a lot more than the average single-family home. You also have to account for any necessary repairs or renovations. Still, this isn’t exactly a downside, as putting money into the property will likely increase its value and help you command higher rents. 

The good news is, if you can manage the required down payment, an experienced loan officer (like those at Everest!) can help you score a decent interest rate. Not to mention, once your building is tenanted, the cash flow is truly excellent.

Airbnbs

What are they? 

Followers of Everest likely know all about Airbnb rentals, as we’ve sung their praises in the past! This property type refers to any single-family, multi-family, or private room used for short-term rentals. In the case of Airbnb, prospective renters find listings and book their stays through a web-based platform. Due to the leasing period’s limited nature (a few nights or weeks), most Airbnb investment properties are located in popular tourist destinations or vacation spots.  

What are the benefits? 

“Airbnb-style rentals take the second spot on my list. Keep in mind—the success of your short-term rental depends on the area it is located in, and some places have been slow in recent years, so always do your research,” says Mr. Glauber. “When done right, you can generate seriously good income.” 

Compared to a typical multi-family, Airbnb properties can be incredibly profitable. In certain areas, nightly rates soar far beyond any figure you might see when negotiating a year-long lease. They also require less effort to find tenants, as renters typically find YOU through the site. 

And finally, running an Airbnb business can be less stressful than long-term rentals. If you experience a bad tenant or an occasional vacancy, you can always look forward to next week. 

Are there any drawbacks? 

Some minor disadvantages of Airbnb investment include the upfront costs you’ll have to pay to furnish and decorate the home/unit as well as ongoing costs for Wi-Fi and other amenities. Not to mention, continuous turnover necessitates regular cleaning and maintenance, which you must do yourself—or—find a reliable housekeeping service. 

“Minor drawbacks aside, Airbnbs are generally a great investment,” says Mr. Glauber. “Just remember that you have to handle the marketing and maintenance for this kind of rental type and should be prepared for occasional vacancies. To make running your Airbnb easier, you can always use an outside management company.” 

House Hacking

What is it? 

“House hacking is when you purchase a multi-unit home, live in one unit, and rent out the other,” Mr. Glauber explains. “For someone who is looking to purchase a property to live in as their primary home and has little experience in landlordship, this is a good opportunity to break into multifamily investing. It also helps pay your primary housing expenses or mortgage.” In some cases, homeowners will rent out a portion of their home (such as a basement suite), or a separate unit on the property, to generate rental income. 

What are the benefits? 

The main objective of house hacking is to generate passive income and mitigate (or completely eliminate!) your own housing costs. The rent collected each month can help cover your mortgage payment, and since you own the home, you are building equity at the same time. 

As aforementioned by Mr. Glauber, house hacking is a win-win from an investment perspective. Not only are you bringing in more cash but you are also gaining invaluable experience in how to manage a rental property, communicate with tenants, and prepare for more traditional rental investment projects in the future. 

Are there any drawbacks? 

The most glaring disadvantage is that this so-called ‘hack’ comes with notable day-to-day challenges. Tenanting a rental property across town is one thing, but bringing a stranger into your own residence is particularly difficult if you value your privacy. What if you and the tenant don’t get along? What if your new roommate makes noise or keeps a messy home? Once the lease is signed, there’s little you can do about lifestyle differences. 

And like other rental property types, you’ll be responsible for maintaining the secondary property, screening possible tenants, and collecting rent each month. These duties can be stressful and time-consuming, but if you can take the heat, house hacking is definitely worth it! 

Single-Family Homes

What are they? 

As the name suggests, single-family investment refers to the purchase of detached dwellings for the purpose of renting (as opposed to personal use). Many beginner real estate investors gravitate toward single-families because it’s something they’re familiar with. They’ve likely purchased their own home and may have made mortgage payments in the past (or continue to do so). Simply put, if someone saves up a bit of cash but is still intimidated by commercial real estate, single-family homes feel like a safe investment! 

What are the benefits? 

If you’re lucky enough to own a single-family rental property, there are plenty of unique perks compared to other investment types. For one, you won’t be chasing down multiple tenants each month or dealing with ongoing vacancies. A detached home typically draws long-term tenants—such as families—who will stay a while due to a job or children in school. 

Furthermore, single-family homes aren’t as costly as comparable multifamilies, and they are known to appreciate in value faster. Property insurance will also be cheaper, making this income-producing investment generally more affordable. 

Are there any drawbacks? 

Nothing to lose sleep over! Buying a single-family rental is a great starter investment, but keep in mind, there may be better ways to invest your money. 

Mr. Glauber explains, “In some cases, multifamily investment is the better choice because it’s like owning and operating two, three, four, or more single-family homes all rolled into one simple transaction. You have much greater profit potential. But for someone just starting out, purchasing a single-family home is still a smart investment! Even if you turn a smaller profit or break even in the short-term, the property will increase in value over time.” 

Mobile Homes

What are they? 

While a ‘trailer home’ is usually meant for cross-country travel or camping, a ‘mobile home’ is designed for more permanent living—but with much more versatility compared to a traditional single-family. These dwellings are constructed in a factory and transported anywhere you desire, making them uniquely portable for people who don’t need a lot of space. 

But how exactly can you turn mobile homes into an investment opportunity? Good question! Oddly enough, many beginner rental investment lists mention mobiles homes among their ranks. Let’s see how these wheely wonders weigh in. 

What are the benefits? 

People who have successfully rented out their mobile homes highlight a number of advantages, starting with the relatively low cost of these kinds of properties. Compared to a typical single-family or multifamily, mobile homes are also less expensive to heat, cool, and maintain due to their diminutive size. 

In certain parts of the country, they’re also in high demand. People who have been priced out of the regular rental market may seek shelter in a mobile home park. And as a landlord, you always have the option of moving your mobile home if its particular location grows stale. 

Are there any drawbacks? 

“I’ll be honest. This isn’t my favorite rental property type,” says Mr. Glauber. “The problem is, you can’t get a loan for mobile homes. You don’t own the land, so this kind of purchase isn’t as secure as the others. For someone seriously wanting to break into housing investment, there are probably better options.”

Mobile homes are notorious for their depreciation. Whereas traditional real estate mostly appreciates in value over time, manufactured homes lose value as quickly as cars do. Also, consider the rent or HOA fees you’ll have to pay to the mobile home park to cover property taxes, maintenance, access to utilities, etc. Will your rental income take care of these charges with enough profit to make the investment worthwhile? Many of these parks also have prohibitive rules in regards to the number of allowed renters, parking of vehicles, pets, and more. This can make it difficult to find reliable, long-term tenants. 

That said, people have found great success investing in mobile homes across the country. It’s an affordable option if you want to diversify your portfolio, experience a taste of landlordship, and break into the world of rental investment. 

REITs

What are they? 

This isn’t a property type, per say, but many ‘top rental investment’ lists give an enthusiastic nod to this popular shortcut into the CRE world. Also known as a ‘Real Estate Investment Trust,” an REIT is a tool used by investors to diversify their portfolios and gain access to big-scale residential and commercial real estate projects that would otherwise be out of their financial reach. Some of these trusts are publicly traded on the stock exchange, while others are not. 

What are the benefits? 

Investing in an REIT is a great way to reduce your overall portfolio risk, as your assets are allocated beyond the usual stocks and bonds to include real estate. They’re also a fantastic option for current real estate investors who don’t have the deep pockets to fund a massive commercial purchase. As a shareholder, you’ll receive regular dividends, and you can also buy and sell your shares at any time, making REITs a very flexible investment option. 

In short, these companies put the PASSIVE in passive income. All you have to do is give them your money, sit back, and rely on their expertise. But it can’t be all that simple…

Are there any downsides? 

For a starter real estate investor, REITs teeter into some tricky territory. 

“REITs are beneficial because you don’t have to transact on your own. There’s no worrying about purchasing a property, renovating, tenant relations, and the like. You send your money, and when placed in the right hands, it can be a positive experience,” says Mr. Glauber. “But if you have the time to invest your money on your own, I say do it. All profits stay in your pocket, and won’t have to pay the high brokerage fees or dividend taxes associated with some REITs.” 

So, if you really want to break into rental real estate, it may be more advantageous to pursue multifamily, short-term, or single-family rental investments. 

Is it the right time to get into rental investment? 

Everest says: we help finance success in any market cycle

Everest Equity

NY’s Premier Partner for

Residential & Commercial

 Real Estate Investment

From multifamilies to single families,

your rental empire starts here.