Investing in rental properties has always been a top choice for beginner investors in the real estate market, and it is so for a number of good reasons.
Rental properties are associated with easier-to-acquire loans, higher flexibility, and a lower risk of losing money on your investment.
This blog aims to scratch the surface of investing in rental properties and the advantages of choosing rental properties as your first investment in the exciting world of real estate.
Investing in Rental Properties: Easy to Finance
One of the major benefits of investing in rental properties is related to the options available for financing your investment property. The most common type of obtained loans for financing a rental property is conventional loans. This type of loan requires the borrower to pay a down payment of 20%- 30%, which is a large amount of money, but offers a low steady interest rate on the loan, which is easier to pay off over the 15-30 years duration of the loan in the case that the rental property succeeds in attracting tenants.
Conventional loans will typically use your investment property as security for the loan, and your potential rental income does not count into your debt-to-income calculation. This means that if you qualify for a conventional loan, the expected rental income of your rental property will not play a role in your acceptance of the loan. However, if you get qualified by the lender without taking your potential rental income into consideration, it would mean that your rental income will only facilitate paying back your debt, and a successful rental property is guaranteed to provide enough income to pay off your debt.
Another option available for financing your rental property investment is through a private funding loan. This type of loan requires a shorter amount of time to acquire, but it also has a higher interest rate than a conventional loan. It is a good type of loan if you have a solid plan for your investment property, and if the rental property you’re investing in has a high potential for success and appreciation.
Private funding loans are often used for a short term until conventional funding becomes available.
Investing in Rental Properties: Flexible Strategies
Another major benefit of investing in rental properties is the flexibility of choosing your rental strategy. There are multiple ways through which you can rent out an investment property and make a profit in the process, and an investor is free to choose any of the available methods based on which strategy suits best this particular investor and/or the investment property he/she is investing in.
For example, there are two types of rental properties based on the duration of the lease. Long-term (traditional) rental properties are usually leased out for longer periods of time, typically a minimum of 6-12 months, allowing for a guaranteed occupancy rate and a steady quality of tenants, while short-term (Airbnb) rental properties allow for shorter leases that are less than 6 months. While short-term rentals are more difficult to manage and maintain quality tenants, they offer the chance for higher rental income.
Additionally, if you’re investing in a rental property you can choose to either live in the property you’re renting out or not. For example, you could buy a 3-bedroom apartment, live in a bedroom in that apartment, and rent out the two other bedrooms. This strategy allows for more convenient financing since primary home residences are easier to finance, while also allowing you to generate rental income through your primary residence.
Investing in Rental Properties: Low-Risk Experience
One of the reasons why investing in rental properties is a good choice for beginner real estate investors is due to the low-risk nature of rental properties. Meanwhile, they also provide a good experience for beginner investors to learn from.
The process of purchasing a rental property, analyzing it, calculating its expenses and returns, and managing it all allows the beginner investor to better understand the market and the mistakes that can threaten a real estate investment without facing a high-risk while doing so.
During your rental property investment, you will face several issues, and there is a high chance that you will be making some mistakes. However, the nature of rental property investments allows investors to learn from their mistakes and fix their mistakes to improve their investment over time until the investment reaches the success level that they were hoping for.
Additionally, in rental property investing, you will be able to gain a first-hand insight into the experience, requirements, and responsibility of managing an investment property. Once you’ve gained enough experience and your rental property is a success, you are free to reduce that responsibility upon yourself by hiring professional property management, while still maintaining the insight that you’ve gained through managing your own rental property.
Investing in Rental Properties: The Long Run
In the long run, investing in rental properties offers the most benefits in the real estate market. This is due to rental properties providing a source of income and return on investment over time, which would provide enough profit to cover all the costs of the investment property and start earning a high return on investment after a number of years, while also providing the option of selling the property at some point to make use of real estate appreciation and the profit made from selling a rental property.
This means that a rental property can be used to earn a profit in three different ways, and you are free to decide how long you’re willing to wait to make the most out of your real estate investment.
Investing in rental properties is an excellent choice for beginner investors looking for a low-risk guaranteed investment, while also gaining a good amount of experience to improve their future investments. The number of options available to rental property investors allows for great flexibility which can be modified to suit everyone’s personal needs, and the profitability of rental properties has the highest chance of not causing an investor to lose money on his/her investment.
If you’re interested in investing in rental properties, make sure to try Mashvisor as it will give you a head-start and an advantage over other investors, allowing you to make your investments in shorter periods of time, and using high-quality accurate data to choose the optimal investment decisions.