Best Types Of Rental Investment Properties For Passive Income

karina Updated on May 14, 2025 71506 views 105

Whether you’re a first-time investor or looking to expand your real estate portfolio, choosing the right type of rental investment property is one of the most important decisions you’ll make. From multi-family homes and mobile units to REITs and Airbnb rentals, each property type offers unique benefits, challenges, and income potential.

This guide walks you through the most popular rental property investment types, breaking down how they work, who they’re best suited for, and what to expect in terms of cost, return, and effort. 

We’ve also included practical tips, comparison points, and a step-by-step guide to help you take action.

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What is a rental property investment?

A rental property investment is a type of real estate investment where you purchase a property with the intention of renting it out to tenants in exchange for monthly income. Instead of living in the property yourself, you lease it to others— either short-term (like Airbnb) or long-term (like traditional leases).

The goal is to earn a steady stream of passive income while the property also grows in value over time, building your wealth in two ways:

• Monthly cash flow from rent payments
• Appreciation as the property’s market value increases

Here are the best income properties and rental investments to consider, primarily because of the positive cash flow potential.

Top 6 types of rental property investment 

1. Multi-family homes

If you’re just stepping into real estate investing, multi-family homes—like duplexes, triplexes, and small apartment buildings—can be one of the smartest and most efficient ways to get started. 

These properties contain multiple rental units within a single building, allowing you to earn income from several tenants at once while managing only one location.

Unlike single-family homes, multi-family properties let you build a rental portfolio faster, minimize vacancy risks, and take advantage of income and tax benefits—all while staying within reach of first-time investors.

Why multi-family rentals are a popular first investment

1. Steady demand from renters

Multi-family properties are in constant demand because they meet a basic need—affordable housing in both urban and suburban areas. People are always looking for rental units, and buildings with multiple units tend to stay occupied more consistently than other property types.

2. Built-in income scaling

One of the biggest advantages of a multi-family property is the ability to earn from multiple rental streams. If one tenant moves out, the other units still generate income, softening the blow of vacancies. Over time, you can also adjust rents to keep up with inflation and market demand—further improving your income.

3. Lower cost per unit

It might seem counterintuitive, but buying one building with four units is often cheaper per unit than buying four separate single-family homes. This is due to “economies of scale.” You’re getting more rental potential while saving on closing costs, property taxes, and insurance compared to managing several standalone houses.

4. Simplified maintenance and management

With all tenants under one roof, it’s easier to handle repairs, collect rent, and manage issues. Instead of driving to multiple locations or hiring different contractors, you deal with one property, one roof, one lawn—which saves you time and money.

5. Attractive financing terms

Banks often view multi-family homes as lower-risk investments because of their income stability. As a result, you may qualify for better mortgage terms, such as lower interest rates or smaller down payments—especially if you plan to live in one of the units (a strategy known as house hacking).

6. Valuable tax breaks

Multi-family properties come with powerful tax advantages. You can write off mortgage interest, maintenance costs, property management fees, and even take depreciation deductions to reduce your taxable income. If you decide to sell later, you can also defer capital gains taxes through a 1031 exchange.

Start by researching 2–4 unit properties in up-and-coming neighborhoods. Look for areas with strong job growth, access to public transit, and low vacancy rates. 

Run the numbers to ensure the rental income covers your mortgage, expenses, and leaves room for profit.

2. House hacking

When you’re wondering how to get into rental properties with limited capital, house hacking could be your best move. This strategy involves buying a multi-unit property, living in one unit, and renting out the others. It’s one of the most affordable and effective ways to start investing in rental property—especially for beginners.

With house hacking, your home becomes your first investment property, and your tenants help pay the mortgage. It’s a smart way to reduce living expenses, build equity, and earn passive income—all at the same time.

Why house hacking is one of the best rental property investments for beginners

1. Low down payment entry

You don’t need a huge investment to start. As an owner-occupant, you can qualify for an FHA loan with just 3–5% down, compared to the typical 15–20% for non-owner-occupied investment properties. 

That makes it easier to invest in property without draining your savings.

2. Rental income covers your mortgage

The rent you collect from tenants helps cover most—or even all—of your monthly mortgage payment. This setup dramatically lowers your out-of-pocket costs, improving your cash flow while you still live in the home.

3. Tax benefits help you save more

Expenses like property maintenance, utilities, insurance, and mortgage interest related to the rental units can often be written off. Plus, depreciation lets you reduce your taxable rental income, making house hacking even more cost-effective, especially if you’re early in your career and in a higher tax bracket.

4. Build equity automatically

Every mortgage payment reduces your principal and builds home equity—acting like a forced savings account. Combine that with natural property appreciation over time, and your net worth grows without needing to invest more money upfront.

5. Better loan terms than regular investments

Because you live in the property, lenders offer better interest rates, lower fees, and more flexible terms than they do for traditional rental investments. It’s one of the few ways to buy a rental property with favourable financing while still getting landlord benefits.

Start by searching for duplexes, triplexes, or fourplexes in your local market. Make sure the rental income from the additional units can cover most of your monthly mortgage and operating costs. Aim for positive cash flow from day one, and you’ll be living in one of the best investment properties for beginners.

3. REITs

A REIT (Real Estate Investment Trust) allows investors to earn income from real estate without directly buying or managing physical properties. It’s one of the most accessible ways to start investing in property, especially for those looking for hands-off real estate investment opportunities.

REITs own and operate income-producing real estate—such as apartment complexes, office buildings, shopping centers, and industrial warehouses. Investors buy shares in these trusts, similar to purchasing stocks, and earn a share of the income generated by the underlying properties.

Why REITs are among the best real estate investments for passive income?

1. Professionally managed portfolios

REITs are managed by experienced real estate professionals who handle property acquisition, tenant relationships, and day-to-day operations. This gives individual investors access to institutional-level management without any of the workload.

2. Stable income through dividends

By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends. This structure ensures a consistent income stream, making REITs attractive to those seeking regular returns from real estate investments.

3. Broad market exposure

Many REITs hold a mix of residential, commercial, and industrial properties across various geographic regions. This diversification reduces risk and offers more stable long-term performance compared to owning a single rental property.

4. Easy entry and exit

Publicly traded REITs are listed on stock exchanges, allowing investors to buy or sell shares anytime. This liquidity is ideal for those who want exposure to real estate without committing to long-term property ownership.

5. Low capital requirement

Unlike purchasing an investment property, which can require tens of thousands in upfront capital, REIT shares can be purchased for as little as a few hundred dollars. This opens the door for investing in real estate even with limited funds.

6. Favorable tax treatment

Dividends from REITs often qualify for reduced tax rates when held for a certain period. While not as tax-advantaged as direct ownership, REITs still offer benefits that can improve net investment returns.

REITs stand out as one of the best income property alternatives for those who want reliable returns, low effort, and access to real estate investment opportunities without physical involvement. 

They offer a practical way to diversify a portfolio while participating in the long-term growth of the real estate market.

4. Detached single-family homes on sale

Buying detached single-family homes and renting them to tenants remains one of the most popular strategies for individuals looking to own income property. These stand-alone houses are often located in suburban neighbourhoods and appeal to long-term renters seeking space, privacy, and a sense of permanence.

For new and seasoned investors alike, single-family homes represent a property to invest in when the goal is stable appreciation, manageable maintenance, and consistent rental demand. They also offer flexibility in both financing and future resale.

Why detached homes are a trusted form of rental property investment

1. Strong appreciation over time

Single-family homes tend to appreciate faster than inflation, especially in growing markets. Over several years, property values can rise substantially—helping investors build long-term equity and wealth.

2. Room to add value

These homes offer opportunities to increase rental income through strategic upgrades or renovations. Projects like kitchen remodels, fresh paint, or landscaping can justify higher rents and improve tenant retention.

3. Tax benefits that boost returns

Owners can deduct operating expenses such as property taxes, mortgage interest, insurance, and repairs. Depreciation further lowers taxable rental income, helping to maximize annual returns.

4. Wider loan access for buyers

Lenders are generally more willing to finance single-family homes compared to commercial properties. This makes buying rental property more accessible for individuals using conventional mortgages or FHA loans.

5. Flexible exit options

Single-family homes offer several exit strategies. Owners can sell to a homeowner, trade up using a 1031 exchange, or refinance the property. These homes also tend to attract more buyer interest, making resale easier.

6. Lower tenant turnover

Tenants who rent single-family homes often stay longer than apartment renters, especially families. This lower tenant turnover reduces vacancy costs, maintenance between leases, and advertising expenses.

Although detached homes require active management, they continue to be a best investment property type for those looking to build wealth steadily. With the right purchase price and neighborhood selection, investors can enjoy cash flow, appreciation, and long-term value from a property that meets both tenant and market demand.

5. Mobile homes

Investing in mobile homes—also known as manufactured housing—offers a low-barrier path to owning an income-producing property. Investors typically purchase both the home and the land it sits on, then lease it to long-term tenants, often within established mobile home parks.

Though mobile homes don’t appreciate as quickly as traditional real estate, they offer one of the most affordable ways to own a rental investment property that generates consistent monthly income.

Why mobile homes are considered good investment properties for budget-conscious investors

1. Lower purchase price

Compared to traditional single-family rentals, mobile homes cost significantly less to buy. This lower price point makes it easier for investors to enter the market with minimal startup capital—ideal for those who want to build a portfolio on a limited budget.

2. Consistent demand for affordable housing

In many regions, mobile homes meet the growing need for affordable rental housing. Because they offer lower rent than standard units, tenant demand is often high—leading to lower vacancy rates and faster lease-ups.

3. Reliable monthly cash flow

Although mobile homes may not deliver strong appreciation, they are valued for their steady cash flow. Rents often exceed monthly costs, creating a reliable income stream that makes them attractive as the best income properties for recurring returns.

4. Lower maintenance costs

Mobile homes generally have simpler construction and smaller living areas, which means fewer repair needs and lower upkeep expenses. Investors can maintain unit cost-effectively without sacrificing tenant satisfaction.

5. Stable tenant occupancy

Longer lease terms are common in mobile home parks, especially among older tenants or retirees seeking stable, low-cost living. This contributes to a more stable tenant base and minimizes turnover costs over time.

While mobile homes may not offer the rapid value growth of other real estate types, they deliver dependable returns through rent. For investors who prioritize cash flow over appreciation, and who understand the unique dynamics of rental housing investment, mobile homes can be a fairly hands-off investment with high yield potential—especially when purchased at the right price in strong demand areas.

6. Airbnb rentals

Airbnb rentals represent a modern and flexible approach to rental property investments, allowing owners to earn income by renting homes or individual units to short-term guests. By tapping into the booming vacation and business travel market, investors can often generate higher returns than traditional long-term rentals—especially in tourist-heavy or high-demand urban areas.

Unlike standard lease agreements, Airbnb operates on a per-night pricing model, giving owners the opportunity to dynamically adjust rates and maximize revenue during peak seasons or events.

Why Airbnb properties stand out among short-term rental investments

1. Higher nightly revenue

Airbnb enables property owners to charge premium nightly rates, often well above the equivalent monthly rent. Through tools that support dynamic pricing, investors can adjust rates to reflect local demand, holidays, and events—unlocking greater income potential.

2. Flexibility with existing properties 

Many investors begin by converting existing homes, guest houses, or second properties into short-term rentals. This model makes it easier to enter the Airbnb market without acquiring new real estate, reducing initial capital requirements.

3. Reduced vacancy gaps

Frequent bookings from weekend travelers, vacationers, and remote workers help minimize vacancy periods. A well-reviewed listing in a desirable location can enjoy high occupancy rates year-round.

4. Premium through design and amenities

Short-term renters are often willing to pay more for well-designed spaces with thoughtful touches. By investing in décor, comfort, and convenience features, owners can command higher rates and earn more consistent positive reviews.

5. Dual rental strategy options

Airbnb properties offer hybrid flexibility—they can be rented on a nightly basis during peak seasons and switched to long-term tenants during slower months. This approach helps stabilize cash flow throughout the year.

6. Scalability for growth

Once systems for cleaning, guest communication, and turnover are in place, managing multiple Airbnb listings becomes easier. Many investors use this model to scale income-producing real estate portfolios with relatively low overhead.

While Airbnb offers the opportunity to earn more than traditional rentals, it comes with greater responsibility. Success in this space depends on attention to detail, active management, and compliance with local regulations. For investors willing to put in the effort, Airbnb can be one of the best investment property strategies for high cash flow and flexible use.

Key factors to consider for the best income properties

Before investing in any rental strategy, it’s important to understand how each option aligns with your financial goals, risk appetite, and the level of involvement you’re comfortable with. Below is a snapshot of the most common income property types and what makes each unique:

House hacking

• Offers high ROI by using rental income to reduce or eliminate your own living costs
• Requires a low down payment (as little as 3.5% with FHA loans)
• Involves active tenant management since you live on-site
• Best suited for beginners looking to enter the market with minimal upfront capital
• Combines homeownership and rental property investment in one move

Multi-family homes

• Generates moderate and scalable rental income from multiple units
• Demands a higher initial investment but benefits from economies of scale
• Allows centralized management, reducing operating costs
• Lower vacancy risk makes it a low-risk income property
• Ideal for investors ready to grow a rental property portfolio

Single-family homes

• Typically offers steady appreciation and potential long-term ROI
• Easier to finance with conventional loans and wide lender access
• Requires hands-on effort for repairs, leasing, and tenant communication
• Competitive to purchase due to demand from both homebuyers and investors
• A solid property to invest in for wealth-building over time

Mobile homes

• Known for low purchase price and affordable entry
• Generates steady cash flow but limited appreciation potential
• Lower maintenance costs due to simpler structure and smaller size
• May face higher tenant turnover, especially in transient markets
• A good option for investors focused on cash-flowing rental investments

Airbnb rentals

• Delivers high ROI in tourist hotspots and major cities
• Requires furnishing, upfront setup, and continuous guest turnover
• Provides flexibility to switch between short- and long-term renting
• Demands active involvement, but can scale with proper systems
• Best suited for investors seeking high-yield short-term rental property

REITs (Real Estate Investment Trusts)

• Offers exposure to income-producing real estate without owning property
• Pays consistent dividends with low effort and high liquidity
• Accessible for new investors—start with a few hundred dollars
• Suitable for those seeking a hands-off investment
• Lower historical returns, but great for diversifying property investments

What type of rental property is most profitable?

Based on our extensive research and experience of dealing with dozens of property managers, house hacking and multi-family homes appear to be the most profitable rental properties for beginning real estate investors.

Here’s a simple comparison of these 5 investment opportunities for a beginner:

✨ Rental Property Investment Tip:

If you’re new to investing, start with house hacking or REITs. They require low capital and offer practical exposure to real estate returns.

Investing in the best income properties

There are many creative ways to approach rental property investments. Some investors buy land and build tiny homes to list on Airbnb. 

Others turn commercial spaces into multi-tenant rentals for small businesses. These advanced strategies work—but they often require deep experience, high capital, or both.

For first-time investors, keep it simple

When you’re just starting out, your best bet is to focus on properties that are easy to manage, financially accessible, and proven to generate returns. That’s why we recommend beginning with:

• A single-family home in a stable neighbourhood
• A small multi-family property (like a duplex or triplex)
• A mobile home investment in a park with strong rental demand

These property types are not only beginner-friendly but also come with straightforward financing options and lower barriers to entry.

How to Start Investing in Rental Property (in 5 Simple Steps)

Step 1. Set a realistic budget

Calculate how much capital you can invest, including your down payment, closing costs, and reserves for repairs or vacancies.

Step 2. Choose your property type

Decide whether you want to go for a single-family home, duplex, mobile home, or another entry-level income property based on your comfort with management and risk.

Step 3. Research high-demand rental markets

Look for areas with job growth, population increases, and affordable purchase prices. Use tools like Zillow, Rentometer, and local listings.

Step 4. Run the numbers

Use a rental property calculator to check if the property offers positive cash flow after mortgage, taxes, insurance, and maintenance.

Step 5. Start small and learn

Your first property doesn’t have to be perfect. Focus on learning the ropes, building confidence, and growing from there.

👉 Here’s a complete checklist to guide your rental property investment journey—step-by-step, from planning to purchase.

Rental Property Readiness Checklist

What are the best places to buy rental property in 2025?

In 2025, the best locations for rental income properties will continue to reflect a combination of economic growth, housing demand, affordability, and landlord-friendly regulations. Whether you’re buying your first rental or adding to an existing portfolio, choosing the right market is critical to maximizing your rental property return on investment.

Here are the top traits shared by today’s most promising rental property markets:

1. Strong job growth & in-migration

Cities like Raleigh, Nashville, Austin, and Charlotte remain magnets for skilled workers and remote professionals. As new residents arrive, the demand for rental housing rises, making these cities excellent choices for buying rental property with consistent tenant demand.

2. Major corporate expansions

Regions benefiting from major developments—such as Amazon HQs, tech campuses, or biotech hubs—see rising incomes and population growth. These areas become high-potential zones for investment rental properties due to growing housing needs from relocating professionals.

3. Pro-development & landlord-friendly policies

Markets with streamlined zoning and construction approval processes, like parts of Florida, Texas, and North Carolina, are better positioned to support growth while maintaining affordability. They also tend to have landlord protections that make tenant management more predictable and secure.

4. Affordable entry points in growth corridors

Secondary cities near expensive metros—such as Boise (ID), Greenville (SC), Lakeland (FL), or commuter towns outside LA and SF—offer lower buy-in costs with strong future upside. These regions are ideal for investors seeking good investment properties that balance affordability and appreciation.

5. Low vacancy rates & high rent-to-price ratios

Areas with limited rental inventory, strong renter demographics, and solid rent-to-price ratios can provide positive cash flow from day one. Look for neighbourhoods with vacancy rates under 5% and median home prices that still support rental profitability.

Ultimately, rental buyer demand for both single and multi-family housing will cluster around affordable but economically vibrant areas. Leveraging local intel allows for finding pocket opportunity markets.

Final insights: Choosing the right property for your path

There’s no single “best” rental property for every investor—only the one that fits your budget, risk tolerance, and desired level of involvement. 

Whether you want long-term appreciation, short-term income, or low-maintenance returns, there’s a path tailored to your goals:

• Choose house hacking or single-family homes for equity growth and control
• Opt for multi-family rentals to scale income and streamline management
• Start with mobile homes or REITs for low-cost, entry-level investments
• Try Airbnb rentals for high cash flow and flexible use—if you’re ready for hands-on work

In 2025, the best rental investments will be in affordable, high-demand markets where job growth and housing need converge. Focus on properties with strong rental fundamentals, and start with a strategy that balances education with action.

With the right knowledge, you don’t need a huge budget to begin. You just need to start smart.

👉 Not sure how to manage your property after purchase? Here’s what to expect from a property management company, including how they help you scale your rental business efficiently.

How RentPost simplifies property management

RentPost is built to take the stress out of managing rental properties. Whether you’re a landlord with a few units or a property manager handling a large portfolio, RentPost helps you stay organized, save time, and improve tenant satisfaction.

With tools for online rent collection, tenant screening, maintenance tracking, accounting, and real-time reporting, everything you need is in one place. Plus, you can invite tenants, owners, and vendors to their own secure portals—making communication seamless.

Rental Property Investment FAQs

What are the main types of rental investment properties?

The main types of rental investment properties include multi-family homes, single-family homes, mobile homes, short-term rentals like Airbnb, and Real Estate Investment Trusts (REITs). Each offers unique benefits based on cash flow, appreciation, maintenance needs, and investor effort level.

FHA loans allow investors to buy multi-family properties with just 3.5% down. Low down payments are ideal for new investors with less capital. For truly passive exposure, real estate investment trusts provide pre-packaged portfolios without direct property costs or management.

The easiest entry points rely more on existing income rather than future sales gains. Hands-off options keep more money in investors’ pockets.

What type of rental property is most profitable?

The most profitable rental property types are house hacking and multi-family homes. House hacking minimizes housing costs while generating rent, and multi-family units provide stable cash flow, tax benefits, and scalability. Short-term rentals can be highly profitable but require intensive management.

What is a good ROI in real estate investment?

A good return on investment (ROI) in real estate depends greatly on the type of property, location, financing, and other factors. Use these figures below as a general benchmark:

• Single Family Rentals: Target at least 8-12% ROI on spent capital as a decent return for managing individual homes
  Multi-Family Units: Aim for 10-15%+ overall ROI over time from combined cash flow and appreciation
• Short Term Rentals: Can see 15%+ returns, but involves intensive, continuous effort
• REITs: Average around 8-10%+ long run historical gains, balancing stock market-like returns and income.

What is an investment property?

An investment property is real estate purchased to generate income through rent, appreciation, or both. It can include residential rentals, commercial spaces, or land held for future value. Owners may manage it directly or use property managers or investment platforms like REITs.

What are the best property types for beginners to invest in?

The best property types for beginners are multi-family homes, single-family rentals, and house hacking units. These options offer lower risk, available financing, and manageable upkeep. They allow investors to build equity while generating rental income with modest upfront investment.

What are the best locations for rental income properties?

The best locations for rental income properties are growing cities with job opportunities, low vacancy rates, and affordable entry prices. Examples include Raleigh, Austin, and Nashville. These areas combine strong demand with appreciation potential and landlord-friendly regulations.

Are short-term rentals a good investment?

Short-term rentals like Airbnb can be a good investment due to high nightly rates and strong demand. However, they require frequent management, regulatory compliance, and upfront furnishing. Investors who manage these aspects effectively can achieve returns exceeding long-term rentals.