10 Reasons You’ll Love Investing In Rental Properties

If you are new to real estate, investing in rental properties is a great way to get started. Not only can rental properties help you accumulate long-term wealth, they also set you up for a financially stable future while simultaneously diversifying your investment portfolio.

While you’ve probably seen shows on channels like HGTV about house flipping – a more hands on investment strategy – those just beginning their real estate journeys often overlook the benefits of passive income properties. Investing in rental properties may be less flashy, but the unique combination of capital growth, ongoing cash flow, and significant tax benefits make it a strategy that is hard to beat.

Don’t get me wrong; there is plenty of work that goes into maintaining a rental property, especially if you choose not to hire a property management company. Dealing with and evicting tenants, late night maintenance calls, and finding the right property are just a few hurdles rental property investors regularly face. However, if you mind your due diligence and take the time to find a rental property the right way, you will reap the rewards.

Investing In Rental Properties: 10 Undeniable Benefits

rental property investor

There will always be some risk involved when it comes to investing in real estate, even when purchasing rental properties. But if you stay dedicated to maintaining your property, you’re success will be worth it.

If you’re unfamiliar with the benefits of passive income properties, here are 10 facts to get you excited:

It’s Easy To Get Started: You don’t have to be a savvy businessman or businesswoman to start investing in rental properties. You can simply be an individual looking to be freed from the burden of a nine-to-five. It is, of course, important to heavily research the market where you plan to invest, along with basic strategies for how to market and maintain your property; but it is not as complicated as it sounds. In fact, it is far more difficult to play in the stock market – where a strong financial background is required. At its most basic, investing in property can be as easy as an online search, visiting open houses in your area, or attending a local real estate auction.

You Get To Be Your Own Boss: If you are sick of your boss telling you what to do, owning a rental property will give you the freedom you’ve been lacking. Why? Because you get to choose the property you want to invest in, decide which tenants you will rent to, determine how much you will charge for rent, and control how you will manage and maintain the property as a whole. Don’t want to handle everything on your own? That’s fine! Consider hiring a property management company to take care of day to day busy work. While property managers typically charge a percentage of your profits, you won’t have to deal with tenant complaints and maintenance issues – worth the cost!

Passive Income Investing: If you’ve always dreamed of investing in real estate, but aren’t quite ready to quit your day job, rental properties are the perfect strategy for you. Assuming your rental property is occupied with tenants, you will be able to receive a steady stream of monthly income (while also paying down your mortgage). If you choose to utilize a property management company, investing in rental properties is as passive as it gets. All you have to do is purchase the property, sit back, relax, and let your profits come to you.

Appreciation Potential: A great thing about rental properties is that you can use a bank loan (or other people’s money, aka private lending) to purchase the property and increase the potential return. In layman’s terms, this is known as leverage. When you buy an investment property using more debt than equity, the investment is highly leveraged. Why? If you have $5,000 of your own money and get a bank loan for $45,000, you are now able to buy a $50,000 asset. If the property appreciates each year by five percent for 10 years, the appreciation applies to the entire $50,000 asset, not just your own $5,000. After 10 years, your property’s value would have increased by over $31,000. Consequently, you turned your initial $5,000 investment into an $81,000 appreciation profit.

The Tax Benefits: Unless you are a CPA, it is not likely that you get excited for tax season. Unless, of course, you own a rental property! As a rental property owner, you can write off the interest on your mortgage or on any credit cards you used to make purchases for the property. You can write off your insurance, maintenance costs, travel expenses and even your property taxes. There are more specific tax deductions depending on your type of rental property and its location, so be sure to talk to a licensed professional before submitting your taxes to ensure you are getting back all the money you deserve.

It Works: Investing in rental properties is not a new concept. In fact, some even call it the core of real estate investing. The fact of the matter is, people will always need a place to live. Although the real estate market has its ups and downs, the demand for rental properties will always exist. With student loan debt at an all time high – making it harder for millennials to buy homes – and the shift in culture preferences that is increasingly valuing mobility, the need for rental properties will only grow over time.

Great Variety: When it comes to finding your perfect rental property, the possibilities are endless. There are single-family homes, multifamily properties, apartment buildings, office buildings, retail space, industrial space, Section 8 housing, transient housing, and so much more. Within each category, you can choose big, small, updated, dilapidated, and so on. Remember, you are your own boss, and therefore you get to make the decisions.

Accomplishes Different Goals: As a rental property investor, there are many avenues you can take and many goals you can set for yourself. My personal favorite strategies include:

  • Long-Term Capital Growth: If your goal is to save money for retirement, property has historically proven its ability to deliver profit provided you’ve chosen a market with the right supply/demand ratio.
  • Positive Cash Flow: If your goal is to increase your monthly revenue stream, find properties where rents outweigh holding costs.
  • Adding Value: If investing in real estate is your full time job and you’re looking to get your hands dirty, renovate an outdated rental property, write off the maintenance costs, and increase rent prices. You may also choose to subdivide or develop to create more value out of thin air.

Improves Financial Competence: If you want to improve your financial know-how, investing in rental properties is a great place to start. Saving for a down payment teaches financial discipline. Running the numbers on maintenance and other costs will improve your mathematical skills and make your more financially savvy come tax season. Minding your due diligence when finding your ideal market will improve your research skills and help you better understand your local surroundings. Overall, juggling the many different aspects of passive income investing will improve your relationship with money in general.

Relatively Stable Investment: While the real estate market is cyclical, it is relatively predictable. Even when the market is at an all time low, rental property owners in the game for long-term gains did not suffer as much as those who invested in stocks or other “fancy” investments.

Investing in rental properties takes commitment and dedication, but, if maintained properly, can bring equally large financial rewards.

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