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While investing in rental property requires you to shell out a significant amount of money, the returns you get can be rewarding. Having the right investment preference and strategy, you have a higher chance to get your success in this endeavor.
Investors must decide whether to buy one expensive property or two properties in a lower price range. If you’re using a financing instrument for your purchase, it’s advisable to have a property evaluation based on cash-on-cash return instead of the capitalization rate. This strategy provides you with a more accurate estimate of potential returns.
Read the advantages and disadvantages of both options: investing in one high-price rental home or two cheaper rental properties.
Pros and Cons of Investing in a Pricey Rental Home
Some investors buy an expensive rental home because it’s more likely to appreciate over the years. The appreciation rate of a pricey property with excellent features and located in a good neighborhood is a huge advantage. Sometimes, you can get higher returns with this investment option than the combined profits of owning two cheaper properties.
Managing a single property, even if you bought it with an expensive price tag, is another advantage for investors. Being a landlord to one rental home already requires a lot of work. How much more when you manage two of them? Owning one rental helps you to manage everything effectively.
However, despite all the benefits of investing in an expensive property, the hefty price can be a major put-off to many investors. In some cases, the returns of this investment option are lower compared to owning two rentals with affordable price tags. If you’re planning to go this investment route, be sure you can make profits from it.
Pros and Cons of Owning Two Inexpensive Rental Properties
Looking for a rental property to invest in takes some work and research. But when it comes to cheaper rental properties, they’re easier to find than a pricey property. You’ll also have fewer problems acquiring them since their price tags are not that hefty.
Affordable rental properties also give opportunities for real estate investors who are just starting their journey. For beginners who want to build equity and earn a good income, they can buy two cheaper properties to get into real estate investing.
Owning two inexpensive rentals can give you a higher return on investment. You also have the option of selling one of the properties if you find yourself in financial difficulty and keeping the other to generate some income. Market values of real estate and rental rates tend to go up over time, even if they're cheaper properties.
Another advantage of investing in two rental properties is that it helps you diversify your investment portfolio. Rental markets sometimes experience highs and lows. If you own more than one property in different locations and have an excellent investment strategy to carry on between market cycles, you can do alright.
For example, if one rental property is vacant, you can still make profits from the other rental. Imagine if you only own a single property, and it gets affected by a market slowdown, it can be financially distressing on your part.
Now, the common problem investors face in owning two rental homes is the management aspect of it. You need to put in time and effort when you’re running two rental properties. One solution to this problem is to hire a property management company to assist in the management of your rental homes.
Cities to Invest in Inexpensive Rental Properties
For investors who want to buy cheaper rental homes, it’s crucial to know where to find them. According to real estate experts, here are the top locations to invest in inexpensive rental properties.
Herrin, Illinois
- Median Property Price: $104,443
- Average Price per Square Foot: $67
- Average Monthly Income for Short-Term Rentals: $1,200
- Cash-on-Cash Return for Short-Term Rentals: 6.71%
- Average Monthly Income for Long-Term Rentals: $644
- Cash-on-Cash Return for Long-Term Rentals: 3.15%
Altus, Arkansas
- Median Property Price: $97,760
- Average Price per Square Foot: $59
- Average Monthly Income for Short-Term Rentals: $894
- Cash-on-Cash Return for Short-Term Rentals: 5.90%
- Average Monthly Income for Long-Term Rentals: $778
- Cash-on-Cash Return: 7.27%
Del City, Oklahoma
- Median Property Price: $127,484
- Average Price per Square Foot: $115
- Average Monthly Income for Short-Term Rentals: $1,320
- Cash-on-Cash Return for Short-Term Rentals: 5.14%
- Average Monthly Income for Long-Term Rentals:: $837
- Cash-on-Cash Return for Long-Term Rentals:: 4.52%
Takeaway
You can get benefits whether you choose to invest in a single expensive rental home or two cheaper rental properties. But if you’re a newbie in real estate investing, it’s better to opt for the latter investment option. Always do your research on this matter to craft a good investment strategy for your success.
