In real estate investing, property investors have the choice to invest in rental properties for the long term or the short term. While short term investments are increasing in popularity, the majority of property investors still believe that real estate investing in long term rental properties is the best investing strategy. We at Mashvisor also agree with this! However, before buying a real estate property, a real estate investor has to understand which investment properties make the best long term investments.
In general, two types of rental properties make the best long term investments: single-family and multi-family homes. In this article, we’ll explain why these two types of investment properties are the best long term investments, in addition to how real estate investors can find them in the US housing market. So, without any further ado, let’s dive right in!
Best Long Term Investments: Single-Family Homes
Single-family homes (often abbreviated as SFHs) are real estate residential properties that consist of one unit which houses only one family, are built on a single lot, and are not attached to anyone else’s residence. This type of investment properties is one of the best long term investments and highly recommended to real estate investors, especially beginners. Let’s have a look why.
What Makes SFHs the Best Long Term Investments?
Desirable Among Renters
Let’s face it, who wouldn’t want to live in a single-family home? These investment properties offer more privacy and space compared to other types of rental properties. Generally, this type of investment property is desired by many Americans – especially families – who are renting. In fact, according to the National Rental Home Council, single-family homes consist of about 40% of the total rental market!
Moreover, since they’re desirable among renters, these are the best long term investments because they have high demand and supply in almost every housing market in the United States. Over 17 million single-family homes are present today! Therefore, whether you’re a real estate investor thinking of buying another investment property to grow your investment portfolio, or a beginner real estate investor searching for your first rental property, you’ll have a higher chance of finding single-family homes for sale.
To start looking for and analyzing the best single-family investment properties in your city and neighborhood of choice, click here.
Require Less Property Management
Another feature that makes single-family homes the best long term investments is the inexpensive rental property management. Why? For many reasons. First, single-family property investors only have to deal with one tenant. Tenants of single-family homes treat the rental property with more caution as they’ll be living in it for a long time. This means they’re less likely to cause any serious damage to the rental property, which further leads to property investors spending less money on repairs and maintenance.
Another reason why these best long term investments require less rental property management is because they’re smaller in size compared to other types of rental properties. As a result, single-family property investors are not necessarily required to hire a professional property management and pay management fees. Instead, they can perfectly manage the rental property themselves, saving even more money.
Related: Professional Property Management: A Key to Success or a Waste of Money?
Fast Appreciation
The main reason people enter the real estate investing business is, of course, the many financial rewards it has to offer for property investors. While both single-family and multi-family homes provide a real estate investor with positive cash flow in the form of rental income, single-family property investors have the ability to make money from their investment properties through a different form: Appreciation! This is another reason why they’re one of the best long term investments.
Appreciation is the increase in the rental property’s value over time. This is beneficial for a real estate investor because it means the investment property can be sold later in the future for a much higher price than the initial purchase price, earning them a profit. Single-family homes are the best long term investments because, since they’re always in demand and thus tend to appreciate at a much faster rate than other types of rental properties.
Related: Real Estate Investing for Positive Cash Flow vs. Appreciation
Best Long Term Investments: Multi-Family Homes
Multi-family homes (often abbreviated as MFHs) are other types of real estate residential properties, but they consist of two or more units and house more than one family. These rental properties are one of the best long term investments for many reasons. However, multi-family homes are normally recommended to experienced property investors who are looking to grow their real estate investment portfolio. Here’s what makes multi-family homes the best long term investments.
What Makes MFHs the Best Long Term Investments
High Return on Investment
As mentioned earlier, the ultimate goal of real estate investing is to make money. One way that money is made in real estate investing is through positive cash flow. Multi-family homes are the best long term investments because property investors have higher chances of securing positive cash flow since they contain more residential units, meaning more tenants paying monthly rent.
In addition, multi-family real estate investors can boost the rental income by charging more for extra amenities such as a laundry room. Tenants who don’t have washers or dryers in their units can use this laundry room, and the real estate investor will benefit by generating more positive cash flow. Ultimately, multi-family homes are the best long term investments because a steady positive cash flow will lead to higher rate of return on investment!
To start looking for and analyzing the best multi-family investment properties in your city and neighborhood of choice, click here.
Easy to Finance
Even though multi-family homes are expensive, they’re still easy to finance. In fact, thanks to positive cash flow, banks and loan lenders are more motivated to give a mortgage to multi-family rental property investors as they also believe these are the best long term investments because they guarantee enough rental income to cover the loan payments.
Moreover, it’s easier to qualify and obtain one loan to cover a number of residential units than to obtain multiple loans to cover multiple investment properties, each with one residential unit. Furthermore, acquiring insurance is easier as well, which is another reason why they’re the best long term investments. Likewise, rather than acquiring insurance for every residential unit, a multi-family real estate investor only needs one insurance for the whole investment property.
Less Associated Risks
Multi-family homes are less risky than other types of investment properties on two levels. The first one is in terms of vacancies. Multi-family property investors don’t need to worry about vacancies as it’s highly unlikely to get a 100% vacancy rate. This is especially true if you’re investing in a housing market in which rental demand is high and people would rather rent than buy real estate properties. Multi-family homes are the best long term investments in these markets as there’ll always be potential tenants.
The second level is in terms of negative cash flow. Even if there’s some vacancy, there’s still less risk of generating a negative cash flow because real estate investors are able to collect monthly rent and make money from the occupied units.
Finding the Best Long Term Investments
Even though single-family and multi-family investment properties are the best long term investments in real estate, as a real estate investor you should not go out and buy the first investment property that comes your way! A real estate investor has to conduct a real estate market analysis to determine whether or not an investment property is worth his/her money before actually making the purchase.
Related: How To Perform A Real Estate Market Analysis
Alternatively, successful real estate investors make use of Mashvisor’s investment property calculator! Both beginner and experienced real estate investors can access this real estate investing tool. It allows property investors to search for and analyze real estate investment properties across the US housing market to find the most profitable ones. Not only does Mashvisor’s investment property calculator help you find the best long term investments, but it also provide yous with property and neighborhood analysis regarding cap rate, cash on cash return, positive cash flow, and more!
Sign up for Mashvisor and find the best long term investments within minutes! To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.