It is no secret that real estate is a popular and safe investment option to earn passive income and save up for retirement.
Buying and holding a rental property is a favorite strategy among most real estate investors because of the financial security that comes with it. Investing for income in real estate is a long term investment strategy; not only do you earn a steady cash flow every month, but you are allowing your investment property to appreciate over time. To make money through real estate investing, you must first find the perfect investment property to reap the financial rewards you are set out to materialize.
Popular Types of Investment Properties
1. Single Family Homes: The most popular type of investment property among real estate investors
Pros: Longer tenant leases, higher resale price, lower property taxes, lower operating expenses
Cons: One source of income, aka, risk not diversified, maintenance costs falling solely on the homeowner
2. Multi Family Homes
Pros: Higher rent, multiple rental income streams, cheaper cost per unit compared to single family homes
Cons: Higher maintenance costs, lower quality of tenants, higher turnover
Pros: Shared cost of maintenance and upkeep, affordable to buy, amenities, i.e., pool, gym
Cons: High HOA fees, slow appreciation, hard to resell
4. Commercial Real Estate
Pros: Greater return on investment, more flexible financing, economies of scale
Cons: Increased competition, higher risk of poor property management
Features of a Profitable Investment Property
1. Good neighborhood
Investing for income is dependent on many key criteria, including the location of the rental property. Find rental properties in good neighborhoods with low crime rates, surrounded by schools districts and shopping centers. Also, look for areas with good transportation facilities as well as nearby amenities, i.e., city parks, entertainment venues, restaurants, pubs, etc. If you want to maintain a high occupancy rate, make sure the surrounding area and location is a good match for the type of tenants you want to attract. For example, if you choose to invest in a single family home, make a mental note to choose an area with school districts nearby.
2. Property amenities
In tandem to our previous point, having attractive amenities boosts the value of your home as well as the rental demand. Not only should you care about the neighborhood amenities, but also pay close attention to enhancing the investment property’s facade. For single family homes this may include: a backyard with a nice green lawn, open space for kids to play around, a pool in the backyard, a parking space in the driveway, etc. Investing for high income in a rental property is all about enhancing the value of your home from the inside and out.
3. Positive cash flow
It should come as no surprise when we say investing for income is not a passive job. The ultimate goal of real estate investing is spotting positive cash flow properties, but finding these lucrative properties is not an easy task. The competition is strong and real estate investors are vying after those properties in hot real estate markets across the country. And don’t worry about doing math calculations, head over to Mashvisor to find the hottest rental properties with positive cash flow returns in an instant through the available investment property calculator.
4. High rental demand
A profitable investment property reaps a high occupancy rate, high rental demand, and low turnover throughout the year. Keep this in mind when you are on the house hunt for your next investment plan. Investing for income starts with choosing the right investment property to grow your real estate business.
5. High rental income
Investing for income is all about earning higher rent for a greater profit. Profitable investment properties are located in prime neighborhoods with easy access to shops, entertainment, and school districts. As previously mentioned, amenities near the rental property enhance rental demand and boost the property’s value in the form of high rental income.
Tips for Maximizing Rental Revenue
1. Get the down payment in order
Investing in real estate requires a large down payment, you will need at least 20% to finance your investment property in the States.
2. Beware of higher interest rates
Banks are cutting down on strict credit qualifications and making it more affordable for people to borrow money. With that said, however, interest rates are higher on investment properties, so try to choose low enough interest rates that won’t eat into your rental income.
3. Understand the real estate market
Remember to conduct real estate market analysis as well as investment property analysis before you close any deal on a house. Consider hiring a real estate agent for professional advice. Investing for income requires intensive due diligence to make the right investment decisions for your real estate business.
4. Property inspection
If you want to guarantee good return on investment from the get go, make sure to hire a professional property inspector to assess the state of the real estate property and potential expenses you will incur in renovating and fixing it up. Investing for income in real estate is about mitigating your risks as well as expenses.
5. Manage your property well
Hire a professional property manager to handle all the logistics involved in managing your rental property and tenants. It is a lot of work, so hiring a professional makes a lot of sense if you have more than one rental property to manage.
6. Mitigate vacancy
To mitigate vacancy, choose the right tenants. How? Investing for income also means investing in your tenants. Conduct a proper and thorough screening process, which includes background checks, asking for references, checking social media, etc.
7. Discount fix-and-flip as your first investment
If you are starting out in real estate investing, do not fix-and-flip from the get go. It will burn a hole in your pocket, and it will take a while to materialize positive cash flow returns on your investment property. Instead, find a house priced under market value that requires minor repairs as a safer investment. Investing for income is smart investing in the right property at the right price.
Investing for income in real estate is a great business endeavor for many people and one that is financially rewarding for the long run. You can reap the financial benefits and gain financial security if you choose the right investment property for your business plan. Head over to Mashvisor to start your investing today!