What Types of Properties Can You Buy to Rent Out?

Investing in rental properties generates income and builds wealth through real estate. This involves acquiring properties to lease to tenants, creating consistent cash flow. Understanding each property type’s characteristics is fundamental for this investment strategy.

Single-Family Homes

Single-family homes (SFHs) are standalone residential structures for a single household. They typically have private yards and dedicated utilities, offering tenants privacy and space. This appeals to families or individuals seeking a traditional home environment.

SFHs are generally rented long-term, leading to stable tenancy and reduced turnover. Owners are responsible for all property costs, including taxes, insurance, and maintenance.

Owners of rental SFHs can deduct various expenses on federal income tax returns. These include mortgage interest, property taxes, operating expenses, and repairs. The IRS also allows depreciation of the building’s value over 27.5 years for residential rental properties, which can offset taxable rental income.

Multi-Family Properties

Multi-family properties house more than one independent dwelling unit, ranging from duplexes to fourplexes. Each unit has its own entrance, kitchen, and bathroom. These properties share a common structure, often with shared walls and communal spaces like yards or parking.

Investors can generate income from multiple tenants within a single building, providing more reliable cash flow. Vacancy in one unit may not eliminate rental income. Properties with four or fewer units are generally treated as residential for financing, allowing for residential loans.

Owners can deduct expenses like mortgage interest, property taxes, and operating expenses. Depreciation can also be claimed on the building portion of these properties. The Fair Housing Act, a federal law, applies to most multi-family housing, prohibiting discrimination based on protected characteristics.

Condominiums and Townhouses

Condominiums and townhouses are distinct rental investment property types. A condominium involves individual ownership of a unit within a larger building, with common areas jointly owned and managed by a homeowners’ association (HOA). Townhouses are multi-story homes sharing walls with adjacent units, often with individual entrances and private outdoor spaces.

Both property types are often part of communities governed by an HOA, which sets rules for residents and manages shared needs. Owners pay regular HOA fees covering common area maintenance, landscaping, and amenities. These fees are tax-deductible as a rental expense for investment properties.

Condominium owners typically own only their unit’s interior, while townhouse owners often hold title to the land beneath their homes. The shared aspects mean exterior maintenance responsibilities often fall to the HOA, reducing the direct burden on the owner.

Vacation and Short-Term Rentals

Vacation and short-term rentals use a distinct operational model, regardless of property type. This strategy focuses on renting properties for shorter durations, from a few nights to several weeks, for travelers and temporary occupants. The approach is hospitality-oriented, requiring furnished properties ready for immediate occupancy.

This model involves higher tenant turnover than traditional long-term rentals, requiring more frequent cleaning, maintenance, and guest management. Properties are commonly listed on online platforms for short-term stays. Income is tied to nightly or weekly rates, fluctuating with seasonality, demand, and local events.

Income from short-term rentals is generally considered rental income. Owners can deduct ordinary and necessary expenses related to the rental activity, including cleaning fees, utilities, and property management costs. Depreciation also applies to these units, though specific rules regarding personal use versus rental use can impact deductibility.