If you take a look at the real estate investment portfolio of any successful real estate investor, you’re bound to see a variety of different real estate investments. Among all of these real estate investments, rental properties will probably be the most common. Investing in rental properties is the best way to succeed in real estate investing, whether you’re an experienced real estate investor or just a beginner. Let’s take a look at six reasons why you should be investing in rental properties.
Reason #1: Lenders Love Rental Properties
Investing in rental properties is seen as a low risk real estate investment by lenders. This is because the steady rental income that these investment properties provide will allow you to cover your mortgage payments. Investing in rental properties is also low risk because (with the right investment property) you’ll always find tenants. People always need a place to live, and rental properties are becoming more popular as homeownership rates are going down.
The real estate investor’s credit history as well as the state of the investment property and how much rental income it will get dictate what kind of loan will be given. However, when investing in rental properties, real estate investors find little friction in being qualified for conventional bank loans.
With this long-term investment strategy, lenders won’t require larger-than-normal down payments, interest rates, or monthly mortgage payments. Investing in rental properties means real estate investors have one less obstacle to worry about: financing.
Reason #2: Passive Income
Investing in rental properties allows real estate investors to enjoy the luxury of passive income. Passive income is when you’re making money with little to no work involved. A successful real estate investor will put all of the work into finding the best investment property. Find the right location, the real estate property that promises the best return on investment, make any necessary repairs, and find tenants. All of this work is done at the beginning when investing in rental properties. After that, real estate investors can mostly sit back while they are making money from a real estate investment.
Other real estate investments bring in active income, meaning that the real estate investor has to keep working in order to make money. For example, fix-and-flip investment properties require a real estate investor to work diligently to renovate the investment property and then to sell it quickly so that it doesn’t cost money from being vacant. Once the investment property is sold, that’s it: the real estate investor no longer benefits in any way. Real estate investors who choose this investment strategy have to continue to work to find investment properties and go through the cycle over and over again. Investing in rental properties saves real estate investors from the trouble of active income.
Related: Income Properties: Finding the Balance between Passive and Active
Reason #3: Security from Investing in Rental Properties
Tying into Reason #2, with a passive income comes security. Investing in rental properties may not get a return on investment instantly. Instead, investing in rental properties means making money over a long period of time. This long-term investment strategy is great for real estate investors who have trouble saving money. Even if you have trouble setting money aside for the future, investing in rental properties can be your safety net for retirement. Successful real estate investors have even achieved financial independence in a few short years by owning and managing multiple rental properties.
Related: How to Retire Early with Real Estate Investing
Reason #4: The Variety
Every real estate investor is unique and needs to find the best real estate investment strategy for his/her goals. Investing in rental properties provides a variety for real estate investors that other types of real estate investments do not.
First, there are many different types of rental properties. If a real estate investor wants a steady rental income with minimal management, a single family investment property would be the way to go. A multi family investment property would be ideal for a real estate investor who wants more of a rental income from multiple tenants and wishes to take on the property management. Then there’s commercial real estate properties and even land that can be rented out for several purposes.
Second, there is variety in terms of the rental strategy when investing in rental properties. For this long-term rental strategy, real estate investors can go with either traditional rentals or Airbnb rentals. With traditional rentals, real estate investors will get a steady rental income. Airbnb rentals in desirable locations will mean bursts of rental income during certain times of the year. Real estate investors have their pick; whether it be traditional rentals or Airbnb rentals, they will be sure to profit.
Reason #5: Tax Benefits and Appreciation
Successful real estate investors never invest in a real estate property solely for the tax benefits and the appreciation of the investment property. Nevertheless, these two factors are a great benefit when investing in rental properties. Because real estate investors choose this long-term investment strategy, they get to claim depreciation on the value of the real estate property for 27.5 years. Besides depreciation, there are other tax deductions like for repairs done on the investment property. All of these tax benefits ultimately increase cash flow and the return on investment for the real estate investor.
Because of this long-term investment strategy, real estate investors hold on to their investment properties. As time goes on, investment properties generally appreciate. The inevitable repairs made on the investment property as well as the rising rental income add to the appreciation of the investment property. So, if a real estate investor chooses to sell the investment property down the line, he/she would find a great return on investment.
Reason #6: No Experience Needed
Certain real estate investment properties require knowledge and a few years of experience to profit. Investing in rental properties is an easy way to enter real estate investing. Beginner real estate investors can arm themselves with knowledge from books, blogs, and various online articles about investing in rental properties. There are various real estate tools that can help beginner real estate investors find rental properties. Mashvisor is beginner real estate investor friendly, allowing anyone to easily navigate through rental properties. The investment property calculator makes it even easier to determine which rental properties will give the best return on investment.
Becoming a successful real estate investor starts with investing in rental properties. It is the best real estate investment strategy for making money with little effort, experience, and cash on hand. If you’re thinking about starting in real estate investing, investing in rental properties is where you need to begin.
Related: How to Buy a Rental Property Using Mashvisor