Q: What type of property class do you recommend for a rental?
A: It depends. In the Bay Area, if you want cash flow (at least the positive kind), you need to go with multi-residential. This means several units in one location and if possible, small 1-2 bedroom units. With any rental, you have diminishing returns. What does this mean? Look at the example below:
1 bedroom rent: $1300 800sqft
2 bedroom rent: $1500 1000sqft
The 2 bedroom unit has 25% more square footage but does not have 25% more rent (only 15%). When you buy property, the price of the property is based on the square footage. So the small the unit, the more return you will get on your investment dollar per dollar. You aren't getting a good pay off for the extra space. 1 bedrooms are good for the following reasons: easy to rent & easy to clean/fix. Also, people who live in 1 bedrooms generally won't be asking for anything fancy. As long as it works, that's it. You can make everything standard in a small, lower end unit. If the market goes up, you raise the rent. If it goes down, you lower the rent. Usually, you will always be able to rent it out as long as you set a fair price and keep it in good condition.
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