This is the ninth tip in a 10-part series on purchasing residential rental properties based on my experience.
9. Bigger is not always better.
As your property size and square footage help to determine your tax rate, an acre or more of land really isn’t necessary. You’ll mow it (or pay to mow it) and pay extra taxes for it, but beyond increasing overall property value, it won’t do much as far as rental income goes unless you have plans to build an addition or another rentable structure on the lot.
Neither will room size. As long as you meet the minimum bedroom requirements required by the township or city, more square footage per room doesn’t necessarily help. 4 small- to medium-sized bedrooms may actually produce better income than 3 large bedrooms.
Common interior space (living rooms, dining rooms, family rooms, etc.) is great in moderation, but too much can become a problem. Although this space is factored into your property taxes, it can be difficult to actually produce income from this extra space. Plus, if you give your tenants the perfect party house, your property may see a lot more traffic and wear and tear than you intended, and repair and maintenance costs will go up accordingly.
One of our rental properties featured a lovely but immense bar in its finished basement, which we immediately earmarked for removal. The small extra initial cost has paid off in the long run, especially when we decided to rent to college students. If our goal was to flip the house, we might have left it, but for our intended use it was more of a liability.
The optimal rental property for tax purposes is a solid structure on a relatively small lot with adequate distance from the neighboring properties to diminish noise. It features a number of small- to medium-sized bedrooms, and has enough space for the tenants to comfortably congregate without substantial excess.
Published or updated September 24, 2007.