What rental properties to buy

8 Replies

Is it smart to have higher end rental properties ($400k and up) or should I invest in lower end / middle class rental properties?

As with most things ... "it depends". Are you looking for immediate cash flow? Or are you OK with just covering costs for now and looking for more appreciation or to have a free-and-clear home at some point in the future (when you can really rake in the cash flow)? If you are looking for appreciation is that near term (3-5 years) or long-term? What are the average rents for each? In most markets a $400,000 house would have to bring in a pretty high monthly rent to cover not only the mortgage , taxes and insurance but also set-asides for future capital expenditures and annual repairs. Are you planning to manage the property yourself or use a property manager? If you are thinking of going the property manager route then check with a couple of local property managers to find out what is working well for their clients. I am personally investing in lower end homes because I can't reach my cash flow targets with the higher end homes. But that's just me.

Depends on your investment strategy.  A class will provide lower cashflow with higher opportunity for appreciation.  C class provides great cashflow with lower opportunity for appreciation.  B class is somewhere in between.  It also depends on the size of properties you are looking for.  We primarily look for B-C class assets.

Analyze a lot of deals and see what gives you the best cash flow in your area. I have an 8-plex right now and am looking into a mobile home park a few hours from me. The mobile home park will be less maintenance and higher cash flow. It will be a lot more out of pocket for me to purchase though. 
If you are new, talk to your bank and see what you qualify for and then buy whatever works the best for you. If you are single I'd suggest buying a tri or 4 plex and living in it. FHA low down payment and you get to live for free or almost free. Live there for a year and then buy another one and move into it while renting out the old one.
Read lots of books and listen to lots of podcasts. You'll learn a LOT. Good luck!