Operating in the small market of Temple-Belton, TX over the last several years has taught me much about the most profitable, the fastest to rent, and the least amount of risk possible when investing in real estate. The following is a simplified side by side breakdown of a small investment property, a mid-sized investment property, and a large investment property. Bear in mind that although these numbers are approximate, I manage at least one property in each one of these categories, and these figures are very close for this market. Let’s take a look:

Small Property Mid-sized Property Large Property
Value 50,000 90,000 150,000
PITI (PMT) 400 700 1,200
Rent 600 900 1,400
Income 200 200 200

So as we can see from this table, the incomes are all the same. So in this example, it becomes easy to see the type of property you should be investing in, small houses or multi-family properties are the way to go. Here’s why:

  1. Less Risk
    It is easy to see as you move up to the larger properties with higher payments, if they sit vacant then you are losing far more money than if the small house is vacant. Also, potential tenants for higher end houses typically demand more, e.g. a little bit of touch up paint or something probably won’t be a problem for the renter in the small house, but in the larger house, it becomes an issue.
  2. Larger Market
    Small houses rent cheaper, and therefore are in reach of more potential renters. Further, folks that make less money tend to want to rent versus folks that make more money. Bottom line, the cheaper the rent, the easier it is to keep a renter and a low vacancy rate.
  3. Same Money
    As the table shows (and assuming you are following the One Key to Real Estate Investing - buying right), the earnings are about the same. So in essence, you could buy 3 small properties for the price of one large property, and make 3 times the amount of money.

So there you have it, stick to small properties and multi-family dwellings, especially if you are just entering into the real estate investing game. I started with a 2,600 square foot monster that I tried to flip, and ended up losing about 2 years and $8,000. Now have a couple of my own investment properties, as well as managing several others, all producing nice returns. If you have any comments or suggestions, please leave them at the bottom of the page.

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