Real estate is the go-to investment if you’re looking to make some passive income. However, you have to look for the right types of property. Places with the most profit potential tend to be residential, but you might find a viable commercial investment. Here are seven low-maintenance properties that will give you the best chance of making money.
The most popular type of property for real estate investors is single-family homes and condos. They’re easy to manage because the tenant assumes most of the responsibility. They take on many of the day-to-day maintenance tasks as if they were the actual homeowner, often from landscaping to changing the HVAC filters. You just have to ensure they make their payments on time and that you or a professional are performing any more complex repairs or inspections.
The heightened sense of ownership also makes tenants more likely to take good care of the property, and since many single-family units allow for more room to grow than an apartment, tenants may stay longer-term. However, a vacant unit will bring you zero income, so there is some risk involved.
According to the official definition, apartment buildings are properties with more than five living units. Investing in apartments is convenient because you can take out a commercial instead of a residential loan. That means your income will grow if the complex expands and increases its number of units.
The only potential downside to investing in apartments is property management. You’ll have to take on the responsibilities of a landlord — collecting rent, bringing in new tenants, and ensuring each unit stays in good condition. On the other hand, you could hire a property management professional to take care of the maintenance for you.
Duplexes, Triplexes and Fourplexes
Properties with two to four units offer a healthy balance between single-family residences and apartments. You can still use a traditional home loan to purchase these properties, making them a good option for house hacking. They’re a little tougher to maintain than individual residences, but they’re still easier than apartment complexes. You can form close relationships with the handful of tenants without taking intense management measures.
Vacancies will cut into your passive income, but you will keep making money as long as one unit is occupied. However, duplexes, triplexes, and fourplexes may be harder to find than single-family units and apartments. That could mean the initial price might be higher than you would like. Take this factor into consideration when browsing the real estate market.
Learn more: What is House Hacking?
Commercial properties are often more susceptible to economic changes than residential ones, which makes them riskier investments. Look no further than the decline of office buildings due to the rise of remote work. However, self-storage facilities are an exception. They will always be in high demand because many people have excess belongings.
A self-storage facility also makes the owner’s life easier in several ways. You’ll have an endless supply of tenants if it’s located in a high-traffic area. Storage facilities also have shorter lease terms than other commercial buildings, allowing you to quickly get rid of bad tenants and replace them with more agreeable renters.
While office buildings, shopping centers and other commercial properties are going out of style, data centers are trending in the opposite direction. The demand for these spaces will continue to increase as computers become more integral to our daily lives. They can be excellent passive income sources with little to no maintenance responsibilities.
Securing the investment itself is the hardest part of investing in a data center. Private investors are expensive because larger parent corporations usually control them. You can get help from a real estate investment trust to improve your chances.
Mobile homes are common low-income housing options, which makes them more relevant than ever for real estate investors. With a volatile housing market across the country, millions of people can no longer afford single-family homes. Trailers have risen in demand as a result. Trailer parks are as low-maintenance as residential properties get.
The owner-tenant relationship is also interesting. Unlike other rental properties with a fixed number of units, lots come and go. Some trailers are permanent fixtures, but most tenants will bring their own mobile homes onto the property after the first payment. You might consider partnering with like-minded investors to keep track of the constant tenant activity.
Learn more: A Refreshing Perspective on Mobile Home Parks
The rise of Airbnb, TripAdvisor and other travel sites has made vacation rentals highly lucrative investments. Location is the most important factor, of course. Your property must be near a landmark, tourist destination or big city to get consistent tenants. You’ll face more competition in these areas, but you’ll also have a much larger rental pool.
Vacation rentals give property owners a lot of freedom. You can adjust the per-night rate as you please and create special rules for tenants, such as blocking access to certain rooms or amenities. They are admittedly high-maintenance — especially after a messy tenant — but you can always hire a cleaning service and adjust your house rules.
Things to Avoid When Investing in Residential Property
Buying real estate is always challenging, but the current market conditions make things harder for investors to make consistent passive income. That means you need to be extra careful with your buying decisions. Here are some things you must be wary of:
- Odd locations: Location is everything when it comes to buying residential properties. You’ll have constant vacancies if people don’t want to live there. Compare your potential investments to others in the area and see how their values stack up.
- Structural damage: Minor repairs won’t eat too much into your budget, but structural damage can ruin your investment. Make sure you do a thorough inspection with a licensed contractor before making any purchase.
- High operating costs: If the costs to maintain the property are higher than you’d prefer, it probably won’t be a successful investment. Massive commercial buildings are prime examples. They might be alluring, but most investors can’t afford to keep them running. Stick to homes within your budget and realm of expertise.
- Lone investments: Investments should always come in groups. This strategy provides more passive income in the short term and has a higher long-term ROI. It’s always a good idea to diversify your investment portfolio. Never put all your eggs in one basket when investing your hard-earned money.
Not all your investments will lead to consistent profits, but don’t let your failures discourage you. It takes a few tries to find a lucrative investment, especially in today’s real estate market. Just keep the above red flags in mind and conduct thorough research.
Secure Your Passive Income
As long as the concept of private property exists, land ownership will always be the source of passive income with the most profit potential. Make these seven types of properties your main targets during your search so you don’t get overwhelmed with options. You just might find a hidden gem.