Hey guys, Mat here from Keyrenter Tulsa, available to you always at keyrentertulsa.com or 918-351-7000. Today we’re going to be answering a question that comes to us a lot, “What type of rental property is the best rental property?” I wish there was a super simple easy formula to follow, the best rental property is X, but there’s really not, and there’s been tremendous resource devoted to the pros and cons of various types of investments, various classes or categories of rental properties. Today we’re just going to tell you what we think is the best sort of investment.
The first thing we have to consider when we address this question is, what does best even mean? Best can be best for cash flow. Best can be best for appreciation. Best can be best for attracting the greatest tenant in number or in quality. And all those have different answers. For example, many people will say that if you want to focus on cash flowing properties, you should focus on properties that have a lower asset value, meaning a lower price of acquisition, and in doing so, you actually pay less in your mortgage if you take a little bit of leverage against that property, but the percentage as a share of the asset of your rents are going to be higher, and that will give you greater cash flow.
Some people say that it’s better to have rental properties that appreciate more, you’re going to be buying assets in higher quality neighborhoods, you’re going to generally get better quality tenants, and these are the areas that are going to be most desirable over time, that’s what’s pushing the appreciation in those neighborhoods. So you’re going to get, again, better quality property, class A properties, you’re going to get better quality tenants, and that might lead to less headaches.
If we just talk about the types of properties that you could buy, you could buy single family properties, that’s a one unit property that we all know of. You can buy multi-family properties, and that could be a duplex with two, could be a tri, quad, you could have four or five units in a multi-family. Or you could actually move up into a big multi-family, which is five plus units, and could be as large as sizable apartment complexes.
Now, each of those things are going to have pros and cons, but let’s talk through what we like, our bread and butter is the single family home, that’s what I like to invest in, and that’s generally speaking what we think is going to bring the greatest quality tenant, for a number of different reasons that I’ll get into. Again, a single family home, something with three to four bedrooms, two baths, and a one to two car garage. Anywhere where the ideal tenant wants to live. What we want to do is we want to talk to realtors, talk to property managers in an area, and ask them, “Where is there a lot of movement in the sale of properties? Where are people moving in and where do they like to live? Where do great quality tenants like to live?” We’re going to buy in those places.
That doesn’t mean you’re going to buy an incredibly expensive property. You can buy something at a discount, and there’s many ways to do that, and we can touch on that in another video. But you would buy something where lots of people want to live, and doing that will ensure that you have a great flow of potential prospective tenants, and a great quality of those tenants when they come in. It also ensures that you have rental appreciation and the price, the asset price appreciation over time.
Now, why do we love these? Well, single family homes in nice neighborhoods are generally going to, as I said, attract great tenants. What does that mean? You’re going to attract tenants that potentially want to put roots down. And what we love are tenants that stay for two years, three years, four years, and feel some sense of ownership over their home, which in this case is probably your investment property. If they feel a sense of ownership, they’re likely to take better care of the property. That of course in our situation involves mowing the lawns and taking care of the sidewalks and a bunch of other things that are contractually obligated according to their lease. But it also means that they might do some repairs themselves, and I would ask that they get approval from the property manager and the owner prospectively to make those changes, but they’re going to handle those things as if this were their home.
In addition to that, they’re going to be more committed to the neighborhood, they’re going to be better citizens generally, and they’re, as I said, going to stay a longer time. All of these things reduce vacancy, reduce churn in the property, and they lead to greater efficiency of your asset, meaning there’s less downtime, less cost associated with maintaining the property, and less other costs. So for that reason we love the single family home. Of course, your strategy might differ. It depends on whether you want to be a hands-on owner or a hands-off owner, what asset class you might be looking to buy.
Thank you very much. Keyrenter Tulsa always here to help you in your property needs, whether you’re looking to buy or sell, as much as I dislike that one, whether you’re looking to buy or sell or with the management of your properties, we are here to help: 918-351-7000. [email protected] Thanks very much. See you soon.