How to Choose the Right Size for a Rental Unit


Filed under: Temecula Real Estate

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Owning one or more rental units can be a great way to create passive income and build equity over time. If you want to be a landlord, then it is important to talk to an experienced real estate agent for personal recommendations. One of the most common mistakes I see is that investors have a home that is much larger than typical rentals in the area.

The larger the rental unit, the harder it will be to get a good return on the investment. When someone is looking to rent a home, they don’t want to pay top-dollar for the property. Instead, most renters want the least-expensive option since it will be a short-term location to live with their family. The “sweet spot” for rental units is a smaller 3-bed, 2-bath property (either a house or a condo).

Breaking Down the Numbers

Here’s an example so you can see how the numbers add up: if your home is valued at $500,000, then it might be better to sell the larger home and invest in two smaller units. Not only is this a smart idea for cashflow purposes, but it also helps you maximize the investment.

If you have one large home that sits vacant, then you don’t benefit from any gains on the property. You’ll still need to carry the mortgage, and it can be hard to rent the unit because of the higher price tag. In comparison, there is a higher likelihood that you will have tenants in at least one of the two smaller rentals. That means that you can still generate cash flow, even when you are looking for a renter for the vacant unit.

The numbers are also in your favor when it comes to repairs. Smaller homes tend to be cheaper to repair compared to the bills that add up for a bigger property. The costs can add up over time and cut into your profit margins.

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What questions do you have about maximizing your ROI on a rental property? I’m always here to help. Call, text, or email me at (951) 473-0390 or cthomas@epdre.com.