I am in the process of looking for my next rental property. I am pretty small time at the moment, but I hope to build a decent portfolio over the next few years.

Traditionally my research has steered me in the direction of 3BR homes rather than 2BR homes for the following reasons:

* higher rents
* larger pool of potential renters
* better resale value

However, I am wondering if these issues are still relevant. I suspect that although rents may be a bit lower, the ROI for 2BR rentals will actually be higher than with 3BR homes.

If my primary goal is cashflow over appreciation, should I consider 2BR homes, or stick with 3BRs and look at the long term? Properties in the area I'm interested in are already pretty cheap, but the 2BRs are borderline ridiculous.

Any opinions would be appreciated. Thanks.

If 2br are cheap but nobody is renting them than the price doesn't matter.

I would focus on apartment complexes myself instead of individual properties,with separate closings,schedule E's,maintenance issues,tenant issues,etc.

The more centralized your investments the better you can control them and manage problems. One foundation,one roof,tenants in one location,etc.

Thank you for your reply.

Ideally, yes, apartment buildings would be the best choice. However, they require commercial financing and are generally much more expensive than single family homes. I do not have the resources to purchase something like that at the moment. My goal is to build a portfolio of individual properties and eventually start purchasing apartments once I've generated enough capital.

You can do owner finance or partial down with a seller carry back.

With 2/1 homes just make sure you buy ultra cheap.

In all of your considerations, you should have ROI be your number 1 factor. Just make sure that time and sweat and heartbreak are part of your ROI equation. If you have to manage a series of 2 units across a large geographic area, then it will burn through your gas money and your nerves. It will be hard to show them, maintain them, etc. A slightly smaller return on an apartment complex will be much easier to get due to everything being centralized in a single place. But if the numbers work out and you think you can be successful with it then I don't see why not.

I would actually agree with your hunch on this one. In my opinion, the market is the determining factor of whether to buy 3Br or 2Br. In markets with high levels of competition, I don't think you take much of a hit by doing the 2Br route. One example is certain pockets of Los Angeles, where I'm from.