Renting out a house is not complicated. Just follow one of these strategies! One of the many benefits of real estate investing is that you don’t need to have bags of money to enter the business. You also don’t need to buy an investment property either! You have the option of becoming a real estate investor through renting out your own house. In fact, many of the successful property investors today started real estate investing out this way.
Take Eric Bowlin for example. By chance, he bought a triplex and moved into one of the units. One evening, while relaxing with a movie, one of his neighboring tenants knocked on his door – cash in hand to pay the rent. This is when Bowlin decided to focus on real estate investing as a way to create wealth. “I had this instant moment of clarity, where I realized I didn’t have to go out and hustle and chase after money. I realized I could literally make money knock at my door!” In early 2016, he retired at the age of 30 and is now living the good life as a landlord with 40 units! Interested in knowing his full story? Read this: Retiring at 30 with 40 Rental Units: How One Ex-Grad Student Did It.
See, renting out a house can totally be the road to riches. All it takes is efficient knowledge of the real estate market and a willingness to take the risk of becoming a real estate investor. One thing to remember though is that there is more than one way of renting out a house in today’s real estate business. Keep reading as we explain the top 3 strategies – the traditional, the Airbnb, and the rent-to-own strategy.
Renting Out a House Traditionally
Also known as the buy-and-hold strategy, this is the most common way of renting out a house and is considered the best by many property investors. Following this strategy, a real estate investor simply buys an investment property (or uses his own house) and rents it out to tenants for an extended period of time.
Many recommend this rental strategy for beginner property investors for a number of reasons. First, it allows for an extra source of income (rental income) and generates cash flow (rental income – rental expenses). This can then be used to pay down your mortgage, which builds the investment property’s equity. This leads us to the second advantage of renting out a house traditionally: the longer you hold the rental property, the more value it’ll gain. In the real estate investing business, this is called “appreciation” and it allows property investors to sell their investment properties after a long time for high profits.
However, if you’re renting out a house traditionally, keep in mind:
- The generated cash flow must be positive. Otherwise, the rental income will not keep up with the rental expenses, meaning you’re going to lose instead of make money.
- Appreciation depends on the location of investment properties. Thus, a real estate investor needs to invest in a location that is expecting high appreciation in the long-term.
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Renting Out a House on Airbnb
Short-term Airbnb rentals have been gaining more and more popularity in the U.S real estate market. In some locations, these are even a better option for renting out a house than traditional rentals! As the name suggests, Airbnb works as follows: property investors rent out their investment properties for shorter periods of time (ranging from one night to a few months). You don’t need to buy a rental property specifically to rent it out on Airbnb – you can rent out your own home or even a room! You become an Airbnb host and your tenants, Airbnb guests.
This rental strategy can yield high returns depending on the location of your rental property. In general, the best places to own an Airbnb rental property are those with a tourism industry as the majority of Airbnb guests are tourists and travelers. Thus, in such locations, Airbnb hosts will enjoy high Airbnb occupancy rates, an attractive Airbnb rental income and, consequently, a good return on investment.
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However, before renting out a house on Airbnb, property investors must check if Airbnb is even legal in their city. Although this rental strategy is spreading, some cities across the US real estate market still have not legalized Airbnb. Others force very strict regulations on Airbnb hosts. So, to be on the safe side, be a smart real estate investor and check Airbnb laws and regulations before renting out a house on this site.
The Rent-to-Own Strategy
The final rental strategy you can choose when renting out a house is also known as “Lease Option.” This rental strategy gives a real estate investor the ability to rent out his/her investment property to a potential buyer. This is how it works: you sign a contract with the tenant in which he/she agrees to keep renting the house for a set time period (typically 1 – 3 years) before buying it. This benefits you in a number of ways:
- The contract includes a non-refundable “Option Money Fee” that the potential buyer has to pay. This allows you to receive a quick profit when the tenant first moves into the rental property.
- This strategy guarantees that the rental property will remain occupied during the set time period in the contract, allowing you to enjoy a guaranteed rental income.
- If you’re planning on renting out a house but not holding it for a long time, this rental strategy ensures that the investment property will be sold.
- The tenant and potential buyer will be responsible for repairs and maintenance costs.
- When the time comes to sell the investment property, you won’t need to hire a real estate agent, thus eliminating the extra fee which a real estate investor would otherwise have to pay to the agent.
The Bottom Line
Want to make money from real estate investing? Renting out a house is the way to go! Each one of these rental strategies has great benefits for property investors, which is why they’re the most common and most recommended to anyone thinking of starting a real estate investing career. If you wish to learn more on different aspects regarding the world of real estate, continue reading our blog.
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