Most Profitable Rental Property Types [Compare Chart]

Investing in rental properties can be a lucrative way to generate passive income for investors. Rental properties come in different types, each with its own set of advantages and disadvantages. In this article we will determine what the most profitable rental property type is by going through each type and ranking it in 5 key aspects.

Our research shows that the most profitable rental property type is the Short-Term Rental Property type. When managed properly, this type of property can bring in up to 13% return on investment, which is 3% more than any other rental property type. It requires more maintenance and upkeep but it does bring in the most profit.

Most Profitable Rental Property Types Compare Chart

When we rank all the important factors and not just look at the ROI number, we see that the Vacation & Short Term Rentals is the most profitable type of rental property.

	Rank	Ease of Financing	Return On Investment	Maintenance & Expenses Cost	Cashflow Potential	Risk Factors
Single-Family Rentals	19	5	2 (5%-10%)	4	3	5
Multi-family Rentals	18	4	3 (9%-10%)	3	4	4
Vacation & Short Term Rentals	22	5	5 (12%-13%)	2	5	5
Commercial Real Estate Rental	15	2	4 (9%-11%)	2	4	3
Real Estate Investment Trust	16	0	5 (9%-30%)	5	4	2
Senior Living Facilities	16	3	4 (9%-11%)	2	4	3

To make the right decision about what type of rental investment property type to go into let’s look at each type in more detail and consider the advantages, disadvantages, and other important factors.

Single-Family Rental Property Type

Single-family homes rental properties are a popular choice for real estate investors. These properties are standalone houses that can be rented out to a family or individual. They are often the first choice for new real estate investors because they are relatively easy to manage and finance.

Types of Single-Family Rental properties

Single-family homes come in various shapes and sizes, from small bungalows to large mansions. They can be located in urban, suburban, or rural areas. Some of the most common types of single-family homes rental properties include:

• Stand-Alone Homes
• Condos
• Mobile Homes

Benefits of Investing in Single-Family Rentals

Investing in single-family rental properties has several benefits. Firstly, they are easier to manage than multifamily properties since there is only one tenant to deal with. Secondly, they are less expensive to purchase than commercial properties such as office buildings or shopping centers. Thirdly, they tend to appreciate in value over time, providing long-term capital gains.

To keep track of, and quantify the benefits so we can rank the rental types, we will  four important factors with a 0-5 ranking, with o being the least favorable and 5 being the most favorable.

Market Demand and ROI

Single-family homes rental properties are in high demand due to the increasing number of people looking for affordable housing. According to the Census.gov report, single-family homes had an average occupancy rate of 89.9% in 2023, making them a profitable investment. The ROI for single-family homes rental properties is typically between 5% and 10%, depending on the location and condition of the property.

Scaling opportunities

Investing in single-family homes rental properties can also provide scaling opportunities. As an investor’s portfolio grows, they can purchase additional single-family homes in different locations, creating a diversified portfolio. The investor can also hire a property management company to handle the day-to-day management of the properties, allowing them to focus on acquiring more properties.

Multi-Family Rental Property Type

Multi-family rental properties are buildings that have more than one living unit. These properties can range from duplexes to large apartment complexes. They are a popular choice for real estate investors because they can generate a steady stream of rental income.

Types of Multi-Family Properties

There are many types of multi-family properties, from a 2-unit duplex type all the way to large apartment complexes and even high rise buildings. An important distinction to remember is that residential multi-family properties are buildings with two to four units, while commercial multi-family properties have five or more units.

Here are some of the most common multi-family rental property types.

• Duplexes
• Triplexes and Fourplexes
• Townhouses
• Apartment Buildings
• High-Rise Apartments
• Student Housing
• Senior Housing

Market Demand and ROI

Multi-family rental properties are in high demand in urban and suburban areas. They are popular among renters who are looking for affordable housing options.

Investing in multi-family properties can offer a high ROI. According to a study by QC Capital, multi-family properties have an average ROI of 7%-10%. This is alittle higher than the ROI for single-family homes.

Scaling opportunities

One of the biggest advantages of investing in multi-family properties is the scalability. Investors can purchase multiple units in the same building or in different buildings to increase their rental income.

Multi-family properties also offer economies of scale, which means that the cost per unit decreases as the number of units increases. This can help investors reduce their operating costs and increase their profits.

Vacation & Short Term Rental Property Type

Vacation and short-term rental properties can be a lucrative investment opportunity for real estate investors. This type of rental property allows investors to generate income by renting out their properties on a short-term basis, typically for a few days to a few weeks. This type of property also comes with a different set of factors to consider.

Types of Vacation and Short Term Rentals

There are different types of vacation and short-term rentals that investors can consider. Some of the most popular include:

• Single-family homes: These are standalone properties that can accommodate families or groups of friends. They offer more privacy and space than other types of vacation rentals.
• Condos and apartments: These are typically smaller properties that are more affordable and easier to maintain than single-family homes. They are ideal for couples or small groups of travelers.
• Villas and luxury homes: These are high-end properties that offer luxury amenities and services. They are ideal for travelers who want a more upscale experience.

Short-Term vs. Long-Term Rentals

Investors should also consider the difference between short-term and long-term rentals. Short-term rentals typically generate higher rental income, but they also require more management and maintenance. Long-term rentals, on the other hand, require less management and maintenance, but they generate lower rental income.

Market Demand and ROI

Market demand and ROI are important factors to consider when investing in vacation and short-term rental properties. Investors should choose a location that has a high demand for short-term rentals and offers a good return on investment. They should also consider the competition in the area, as well as the local regulations and taxes. With good management a return of 12%-13% can be expected according to Airbtics.com

Scaling Opportunities

Finally, investors should consider the scaling opportunities of vacation and short-term rental properties. They should choose a property that has the potential to be scaled up, either by adding more units or by expanding the property. They should also consider the potential for repeat business, as well as the potential for referral business from satisfied guests.

Commercial Real Estate Rental Property Type

Commercial real estate rental property type is a popular investment option among real estate investors. Commercial properties are generally leased to business tenants, and the goal is to earn a return through rental income and/or price appreciation. There are several types of commercial real estate rental properties, including office spaces, retail spaces, and storage facilities.

Office Spaces

Office spaces are one of the most common types of commercial real estate rental properties. They can range from small, single-story buildings to towering skyscrapers and are designed to provide space for businesses to conduct operations. Office buildings often include conference rooms, shared workspaces, and parking lots. The rental income from office spaces is typically higher than other types of commercial properties. NOI = about 10%

Retail Spaces

Retail spaces are another popular type of commercial real estate rental property. They include shopping centers, malls, and standalone stores. Retail spaces are leased to businesses that sell products or services directly to consumers. Retail spaces have the potential for high rental income, but they also have high tenant turnover rates. NOI = about 10%

Storage Facilities

Storage facilities are a type of commercial real estate rental property that is growing in popularity. They are typically leased to individuals or businesses that need extra space to store their belongings. Storage facilities can be indoor or outdoor, and they offer a steady stream of rental income. They also require less maintenance than other types of commercial properties. According to Storeganise ROI can be as high as 11%

Industrial Properties

Industrial properties are a type of commercial real estate that includes warehouses, distribution centers, factories, and other facilities used for industrial purposes. They are generally located in industrial zones or areas with good transportation infrastructure. Industrial properties can be a profitable rental property type for investors, but they also come with some unique challenges.

Warehouses

Warehouses are large buildings used for storing goods and materials. They are often located near transportation hubs, such as ports, airports, and highways, to facilitate the movement of goods. Warehouses can be leased to a variety of tenants, including manufacturers, importers, exporters, wholesalers, and retailers.

One advantage of owning a warehouse is that they typically have long-term leases, which can provide a stable source of rental income. Additionally, warehouses are often built with durable materials, which can require less maintenance than other types of commercial properties.

Distribution Centers

Distribution centers are similar to warehouses, but they are focused on the distribution of goods rather than storage. They are typically larger than warehouses and are designed to handle high volumes of goods. Distribution centers are often located near major highways and transportation hubs to facilitate the movement of goods.

One advantage of owning a distribution center is that they can be leased to a single tenant, which can simplify property management. Additionally, distribution centers are often built with advanced technology and automation, which can reduce labor costs and increase efficiency.

Market Demand and ROI

With the population growth and a lot of the workforce shifting to freelancing the need for co-working spaces and storage facilities is on the rise. Also with the rise of manufacturing moving back to the US, more and more need for large warehouses and buildings will keep growing. Overall, all across the board, commercial property rental ROI can be expected to be within the 9%-11% with all the commercial property types above.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are a type of investment that allows individuals to invest in income-producing real estate without having to buy, manage, or finance properties themselves. REITs are companies that own and operate a portfolio of income-generating real estate assets like rental houses, duplexes, apartment buildings, office buildings, shopping centers, and hotels.

According to Investopedia, REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This makes REITs an attractive investment option for those looking for steady income streams.

There are different types of REITs available in the market. The ones that deal with rental properties are called Equity REITs: These REITs own and operate income-generating real estate properties such as apartments, office buildings, and shopping centers. They generate revenue by renting out space to tenants.

REITs are professionally managed, which means that investors do not have to worry about managing the properties themselves. They can also be easily purchased and sold through shares on stock exchanges.

While REITs can be a good investment option for those looking for steady income streams, they also come with some risks. For example, the value of REIT shares can fluctuate based on changes in interest rates and real estate market conditions. Plus, some REITs may have high levels of debt, which can make them more vulnerable to economic downturns. You can expect a return from 9% all the way to 30%+ depending on the level of risk you are willing to take on.

Senior Living Facilities

Another interesting real estate rental type are senior living facilities. Investing in this type is a great way to make a profit in the rental property market. With the baby boomer generation reaching retirement age, the demand for senior living facilities is expected to grow significantly in the coming years. According to NAIOP, most senior living communities are 20-plus years old, while only 14.5% are less than five years old. Many older senior living communities were built without the ability to accommodate the needs of the aging population. This creates an opportunity for investors to renovate these properties and make them more attractive to seniors.

Investors should also consider the cost of operating a senior living facility. The demand for senior housing is expected to grow from approximately 1.5 million units in 2020 to 3.2 million units in 2040. To meet such high demand, 100,000 units must be built per year between 2025 and 2040. The cost of building and operating a senior living facility can be high, but the potential for profit is also significant. The average return on investment for senior living facilities is at about 11%.

So Which One Is the Most Profitable?

As you can see that mostly any real estate rental type has an average ROI of about 10%. As an investor, your thought process should be something like “what level of risk, ongoing maintenance do I want to be involved in?”. The other factor to consider is do you have the money or do you want to use other people’s money. Based on these considerations, the most profitable rental property type, by all accounts, is the Single-Family rental property.

Written by: Greg Garrick

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