Types of residential rental properties

[Nada Mostafa]

I'm new to real estate investing and I'm looking to invest in a residential rental property. I'm curious to know which type of property (multi-family homes, single-family homes, vacation homes, or townhouses) typically provides the highest ROI for rental income. I'd appreciate any insights or advice from experienced investors in the community. Thank you!"

[Denver McClure]

Hi @Nada Mostafa, great question! The market you are in will usually determine ROI more than the property type that you buy. For example, a SFH in Austin might have a higher ROI then a multi-family in Boston. Multi-family offers you the benefit of economies of scale, meaning that your repairs and CapEx costs could be reduced due to multiple units being on one lot, under one roof, sharing the same fence, etc. I lean more towards MFH.

Vacation homes should be a separate category than SFH or MFH, because it's a strategy, not an asset type. Vacation or "STR" property ROI will depend on the location (walkable to shops/restaurants, beach/lake, skiing/hiking, etc), local hotel tax, utilities, and travel desire. That would just be a second scenario you can look at when you analyze a new purchase. I usually don't recommend townhouses due to higher HOA fees. An HOA is just one more governing body that can limit your ability to run your business they way you want. Feel free to PM me if you have any more questions!