Beginner real estate investors typically enter the real estate game to get rich. However, the key to becoming a successful real estate investor is by choosing the right investment strategy. Residential real estate is one of the answers you will hear when asking: “How to make money in real estate?” Still, you should choose the optimal rental strategy, either long term rentals or short term rentals, to succeed in this business. Eager to learn what investment strategy suits you as a real estate investor? Keep on reading!
#1 Optimal Rental Strategy
The optimal rental strategy is what successful real estate investors usually aim for. The reason is simple. No one wants to lose money and have financial difficulties. Therefore, experienced as well as beginner real estate investors should consider if long term rentals or short term rentals are the better strategy when renting out a property. Before rushing in and revealing the secret about choosing the best investment strategy when renting out a property, let’s explore the strategies of Airbnb rentals and traditional rentals.
Traditional rentals are often called long term rentals. The main idea behind this investment strategy is providing home to potential tenants. Usually, the rent period starts from six months, but it can also be longer. With such an investment strategy, the landlord ensures a constant rental income as tenants are paying monthly rent to the landlord. It is important for the real estate investor to choose the right amount of rent he/she will charge in order to cover the costs with the rental income he/she gets. Succeeding with this part, a landlord turns his/her rental property into a positive cash flow investment.
Dealing with traditional rentals does not require your full attention which is a great plus if you have another job. For example, you can be an IT specialist while having a few investment properties in the portfolio. However, do not think that once you have invested and found tenants, the work is done. For your tenants to be truly happy with their new home, you are responsible for its maintenance. It is advised to have some basic knowledge of property maintenance to ease the process. However, you can always hire a handyman who will make all the routine checks. Still, remember that you will need to pay his/her salary which will be an additional expense for you. Interested to learn more about long term rentals? Make sure to read “How to Succeed as a Real Estate Investor with Long Term Rentals.”
Airbnb rentals, as well as long term rentals, are considered to be the best way of how to make money in real estate. Short term rentals are seen by many travelers as a substitution for hotels. When dealing with Airbnb rentals, however, the location is one of the main factors that influence profitability. It is known that with short term rentals, a landlord receives greater nightly rental income than he/she would receive from long term rentals.
However, the occupancy rate is not as consistent as with traditional rentals. During vacation seasons, the demand for short term rentals is high. Consequently, that is the moment when a landlord makes the most. Additionally, the majority of landlords increase the rent in order to increase rental income and thus the profits. However, during the rest of the year, the chance of having low occupancy rate is high. This is the reason for a real estate investor to have the additional skill of marketing. Knowing how to promote your property and attract potential tenants is of great value as it ensures bigger profits.
However, if you are not ready or do not have the right skills to make your short term rental property operate on maximum, there is a way out! Hiring a property management company is a great way to transfer all responsibilities from your shoulders to others. Yet, your profits will decrease as you will have an additional expense as a monthly payment to the property management company. Not interested in investing in long term rentals? Learn about short term investment strategies by reading “Real Estate Investment Strategies Guide: Short Term Rentals.”
#2 How to Choose the Optimal Rental Strategy
Since you already have a brief understanding of long term rentals as well as short term rentals, now it is time to understand how to choose the best investment strategy for your property. Make sure to read this bit carefully as it answers not only how to choose the optimal rental strategy but also how to make money in real estate.
Real Estate Market Analysis
The first step a real estate investor should take is to conduct the real estate market analysis. Basically, you gather the information about the real estate market of interest and analyze it. The real estate investor gathers different types of information like the state of the current market, the supply and demand relationship of the current location, and other data.
Moreover, when choosing various properties, an investor is able to review how certain properties are performing in the current housing market. Additionally, conducting real estate market analysis is helpful when deciding on how much to charge when renting out a property in a specific location.
There are two components of real estate market analysis- quantitative and qualitative. A quantitative research deals with calculations of various real estate metrics, such as cap rate, cash on cash return (CoC return), return on investment, etc. A qualitative research presents the features of surrounding areas and investments. Interested to learn more about real estate market analysis? Only by exploring the market first, would you know what the optimal rental strategy for the chosen location is. Make sure to read “Real Estate Market Analysis in 6 Simple Steps.”
Mashvisor’s Investment Property Calculator
Conducting such analysis manually may result in some miscalculations that may negatively affect the final results. It is advisable for many beginner real estate investors to use an investment property calculator to guide them in the process.
To emphasize what this kind of tool can do for you, let’s take a look at Mashvisor’s investment property calculator. This tool calculates cap rate, CoC return, return on investment as well as potential rental income. Mashvisor’s investment property calculator presents you with a detailed investment property analysis and neighborhood analysis. Moreover, this tool provides you with various numbers, like median property price, occupancy rate, etc. Another benefit of using Mashvisor’s investment property calculator is that it indicates the optimal rental strategy which can ease the work of beginner real estate investors. That is of crucial importance, isn’t it?
To learn more about all aspects of long term rentals, continue reading our blog.