In order to have a successful real estate investment business, you should be careful when deciding where and how to invest your money. When renting out properties to generate profit, it is crucial to select the right property type for your business. There are various property types in the rental market such as: a single family home, a multi family home, a condo, an apartment, a townhouse, etc. Choosing the best real estate investment strategy significantly depends on the local rental market. Why is that so? Keep reading to see how the local rental market should drive your choice of property type when buying an investment.
#1 The Demand for Rentals in the Local Rental Market
Successful real estate investment in the rental market comes to choosing the right type of property and the best rental strategy for the specific location. Therefore, it is important to explore the demand for rentals and define the potentially best rental strategy. Are tenants looking for Airbnb rentals or traditional rentals? Is the specific location more popular among tourists or long-term renters? What are the preconditions for investing in Airbnb rentals vs. traditional rentals? Answering the previous questions will certainly give you a better view of the local rental market. Additionally, it will help you decide which type of property would be the best real estate investment strategy for you. This is due to the fact that each rental strategy is associated with specific property types. For instance, when investing in Airbnb rentals, landlords are most likely to purchase a condo or an apartment or to put their finances in a multi family home. When choosing traditional rentals as an addition to your real estate investment portfolio, a single family home and a town house are some of the most popular choices.
Related: Why Are Short-Term Rentals So Popular In the Real Estate Market Today?
#2 Defining the Tenants of the Local Rental Market
In addition to exploring the demand for properties in the local rental market, you should also pay attention to the potential tenants. The first step is, of course, defining whether the tenants are short-term or long-term oriented. For instance, if the location that you are interested in is a tourist area or holds many business conferences yearly, it is much more likely that the tenants are looking for a short-term stay. If, on the other hand, the specific location is the home of a university or offers permanent job positions, the potential renters will search for long-term accommodation. This step would give you an even stronger point in direction to which rental strategy would be the best real estate investment strategy. Moreover, it will help you decide what type of property you should consider investing in.
Related: Airbnb vs. Renting Out the Traditional Way: Which Rental Strategy Is Better for You?
#3 The Supply of Rentals in the Local Rental Market
Another important feature in choosing the type of your real estate investment is the supply of properties in the local rental market. It is important that you observe not only what properties renters tend to prefer, but also what rentals are offered to them. This will provide you with an idea of what is already available in the market. Moreover, it will reveal what the best types of properties for you are. For instance, the most offered property type on the rental market would probably be the one with the most beneficial features. The latter may include lower taxes, high demand, easy maintenance, and so on and so forth. However, you can also try to find another type of property: a property which will be a good fit in the market but would not be as widely accessible.
Related: How a K-Shaped Recovery Could Impact Real Estate
#4 Local Laws and Regulations
Sure enough, it is essential to review the local laws and regulations. This is a key step when it comes to choosing the property type for your investment. For instance, some places would have strict policies on Airbnb rentals, which would disturb your real estate business plan if you wish to pursue this direction. Moreover, it is crucial to explore what documents and permits you would need for each rental strategy and each type of property. Additionally, it is of high importance that you get a preview of the potential costs in terms of mortgage, taxes, etc., which are associated with the desired type of property. Therefore, it is safe to conclude that in order to own and manage a successful real estate investment, you should take in mind the laws and regulations of the local rental market.
Related: 6 Landlord Laws and Concerns You Should Be Aware Of
#5 How the Local Rental Market Should Drive Your Choice of Property Type
It is important to briefly explore various property types in order to fully grasp how the local rental market can and should drive your choice of investing in a rental:
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The Single Family Home and the Townhouse
Single family homes are typically offered as traditional rentals. Although this property type property can be found as an Airbnb, it is usually associated with a long-term rental contract. Such an investment can be really successful in a family-oriented rental market. The townhouse has similar features. If such properties are found in the center of cities, they can be very beneficial for an Airbnb rental.
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The Multi Family Home: The Apartment and the Condo
Multi family homes are properties consisting of multiple housing units. Such units can be, for instance, apartments as well as condos. Apartments and condos can be a successful real estate investment at locations associated with both short-term and long-term rentals. For instance, apartments and condos can be a great Airbnb vacation spot if the local rental market offers favorable conditions. However, such properties can also be a great long-term accommodation for university students or young professionals.
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