High End VS. Low End?
Is an Expensive Property Always the Best Investment for a Rental Property?
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Property Manager
- Steve Rozenberg Consulting
- http://www.SteveRozenberg.com
Risk/reward. Cash flow is higher on the lower rents, but (typically) the quality of tenants is lower.
Appreciation is never guaranteed, but higher end (newer) properties tend to appreciate faster.
What's you tolerance for pain?
When you crunch the numbers, they come out about the same in the long run. @Robert Melcher hit it on the head though, lower end properties tend to cash flow better giving you results that can be used today. Higher end properties tend to cash flow very poorly or not at all giving you appreciation down the road.
I think the key decision factors are if you want to expand and how much effort you want to put in. You can't expand much with higher end without great external income to support it, but you'll also reduce headaches and number of doors.
As Robert and Bryan both mentioned, with higher end properties, you have the possibility to see appreciation. However, in most areas, rent over a certain amount decreases your tenant pool and can result in higher vacancy rates between tenants.
Cash flow is much higher for lower-end properties, but you are also dealing with ‘lower-end’ tenants which increases your costs on repairs and renovations between tenants.
Its not exactly black and white because it depends on how high-end or how low-end you plan on investing in.
I’ve heard many successful investors explain it like this: “My lower end properties pay the month bills, but my higher end properties account for my gains in net worth”.