People are always asking me what type of property makes the best investment. There’s no perfect answer because the type of investment should really suit each investor’s specific situation. If you’re having trouble figuring out which type of income property is best for you, there are a few things you should consider.
Secondary suites are by far the most common type of income property I see. Why? Because they allow you to make money from the home you already have. They don’t take a lot of time or effort, and you can deduct certain expenses from the income – reducing the taxes you owe. When done safely and legally, secondary suites also typically add value to a property, so you can build equity while someone else helps pay down the mortgage.
Is It Right For You? If you’re just getting started, or looking for an easy way to make some extra money from your home, this is the investment type for you. Keep in mind that you need to be comfortable sharing some common space, such as your driveway and walkway, and depending on the quality of the building and materials, there may be some sound transfer between units.
Student rentals are my favourite type of income property. Always have been, always will be. You can rent them by the room, which increases your bottom line, and as long as you’re in the right neighbourhood you will never lack for tenants. In most cases I recommend a dedicated house for this, but they can work as secondary suites as well.
Is It Right For You? A student rental is right for you if you’re willing to accept that it involves a lot of work. Between dealing with the needs of young, first time renters, and the yearly turnover, you’ll need to accept that managing student rentals can be a full-time job.
Executive rentals are popular because they can demand much more rent than your average income property. This is because they come fully furnished and with as many amenities as possible. They’re often short term (days or weeks), and cater to a higher calibre of tenant (people in town on business or going through renovations for example). Executive rentals can bring in big bucks, but they also cost more up-front.
Is It Right For You? If you’re interested in catering to high-end, short-term renters, this is the real estate investment for you. Because of the high turnover, landlords of executive rentals are constantly in a cycle of reviewing applications, screening tenants, and keeping up the units. If you’re willing to put in the work, great – but if you prefer to be hands off, consider hiring a property manager to do this work for you. It will affect your bottom line, but can still be well worth it.
Flipping a house can be a great way to make a profit without tying up your money for a long period of time. By purchasing a home and then making smart upgrades, you can potentially sell quickly at a higher price. Flipping is not without its risks, but for some people the risks are definitely worth the reward.
Is It Right For You? If you’re ready to put in an intense amount of work in a short amount of time, a flip can be a great way to make a quick profit. But like any investment property the success lies in the numbers. When budgets and timing go awry, a flip can easily become a flop.
When it comes to the income they can generate, vacation properties are often on par with executive rentals. They take a lot of work when it comes to management and maintenance, and they can be tough to fill during the off seasons, but if you’re in the right spot you can make more money in shorter periods of time than most rentals. The added bonus is that you get to enjoy them too!
Is It Right For You? A vacation property is perfect for anyone who wants to have their cake and eat it too. If you’ve been dreaming of owning a country home or beach house, renting it out can help offset the costs. You just need to be comfortable with the fact that others will be living in your home part of the time.
Images courtesy of Skit Inc.