Why Smaller Rental Homes are Better Investments


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Real estate can be a great investment. But sometimes in the marketplace, I see a landlord that owns a home that is way larger than the typical rental home. I think it’s a bad choice for a few reasons. Keep in mind the larger the home, the less return on investment you’re going to make, because parties that are renting homes aren’t looking to pay top dollar.

Instead, they’re usually looking for a less expensive, short-term living space to “park” their family. If you have a cheaper, smaller, three-bedroom two-bath house, you’re now in the ideal zone for a maximum return on investment on a property.

Looking at the Numbers

Think about it: if you own one $500,000 large home, you might want to consider selling that home and buying two $250,000 smaller homes. This will more powerfully maximize your return on investment, and it is also important for cashflow purposes.

If you own one large home and it is vacant, you are not making any gains on that property. And if you are carrying a mortgage on that rental home, you still need to make sure it gets paid each month. On the other hand, if you have two smaller homes, and one of them is vacant, at least your other home is still generating cash flow on half of your invested money.

Another reason to invest your money into across more rental home units is that the smaller rentals are likely less expensive to repair. A large executive home that requires repair work will likely require higher quality hardware, more surface area to repaint, more floor space to recover, etc. These costs can really start to add up. Unless there are special circumstances, like you plan on moving back into the home in the future, there is no good financial reason for holding on to an executive home as a rental unit.

If you want to talk to me about maximum return on your rental property, give me a call and let’s have a conversation. You can reach me by phone, text or email: (951) 473-0390 or cthomas@epdre.com