Most people gravitate towards investing in residential real estate because it is a low-risk investment (as opposed to stocks) and it reaps short as well as long-term returns.
Investors-turned-landlords build their real estate business from earning passive income on their positive cash flow properties. To build wealth in real estate, real estate investors diversify their portfolio to maximize returns and capital. It is also crucial to identify and recognize profitable investment properties which are aligned with your business plan and long-term strategy. With the right financial means and resources, almost anyone can heavily invest in residential real estate and build wealth in turn. But, do not rush into residential real estate investing if you do not acquire the right education to help you find profitable real estate investments reaping positive cash flow return.
One way to speed the process in residential real estate investing is to hire a professional real estate agent to guide you in the right direction. But, if you prefer to be more hands on and do it on your own, you must invest time and effort in learning, learning, and more learning about residential real estate investing. Without the right background knowledge, you won’t be able to compete against the big dogs and buy real estate reaping the highest rewards.
Popular Types of Properties in Residential Real Estate Investing
1. Single Family Homes. 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 fall solely on homeowner.
2. Multi Family Homes
Pros: Higher rent, multiple income streams, cheaper cost per unit compared to single 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 and gym.
Cons: Pay high HOA fees, slow appreciation, hard to resell.
Why Residential Real Estate Investing Is the Way to Go
1. Rental Income
This is the number one response to why most people choose residential real estate investing. Given the right location and the right tenant, real estate investors-turned-landlords can be securing passive income for many years before they decide to sell for a profit. While earning rental income every month, you also accumulate real estate appreciation on your rental property; in this way the value of your property increases with each passing day. So, the longer you ‘buy and hold’ your real estate, the more appreciation you accumulate.
2. Tax Advantages
This is another great perk of residential real estate investing because real estate investors are entitled to tax breaks for property depreciation, property insurance, maintenance repairs, travel expenses, legal fees, and property taxes. The tax advantages granted in real estate are a huge incentive for many people to get on the bandwagon and start buying real estate. The government also offers lower tax rates for those investing in long-term real estate investments.
3. Long-Term Appreciation
As noted earlier, the best gain you get from residential real estate investing is the accumulation of long-term appreciation, which in essence, increases the value of your property and allows you to sell for much more than you originally paid. Land and real estate are appreciation assets and will always go up in value, if all else is equal.
4. Low-risk Investment
Unlike the stock market, real estate is a safe investment and almost risk free. For most risk-averse investors, residential real estate investing makes the most sense. You can guarantee high returns and avoid the stress of investing in a volatile market.
5. Leverage Home Equity to Buy More Rental Properties
If you already own one rental property, you can leverage your home equity to buy more real estate properties. In this way, you don’t need to pay out of your own pocket to invest and build your real estate investment portfolio. The deposit for buying another rental property is taken from the equity of your partially owned real estate properties. It hardly needs explaining, but the more investment properties you have, the more equity you accumulate and in turn the more investment properties you can buy.
6. Increase the Value of Your Rental Property
Increasing the value of your rental property is the landlord’s responsibility. Whether you choose to spend a little or a lot on home renovations and repair, it will all play a huge part in the final valuation of the rental property. As a landlord, you can increase both your rental income and the value of your rental property by doing minor and/or major renovations to enhance the property’s visual appeal to maximize your returns in the long run.
Ways to boost your property’s appeal:
- Upgrade the kitchen.
- Clean cut lawn.
- Change fixtures.
- A new paint job can make all the difference; neutral colors are very appealing.
- Clean and declutter.
- Adding hardwood boosts the property’s value.
7. Choose the Right Tenants
The right tenants safeguard and build your real estate business. How, you might ask? It is simple: a happy tenant pays the rent, a bad tenant causes more damage than a good one. Choose em’ wisely. Be very thorough in running backgrounds checks and asking for references.
Choose the Right Location
The right location reaps the highest rewards in residential real estate investing; location, location, location is the number one criterion to make or break your investment. If chosen in a run-down neighborhood, your investment property will experience high tenant turnover and incur high risk of vacancy rate. But, if chosen correctly, capitalizing on a good location is the way to maximize your returns and earn you high ROI.
The positive repercussions of residential real estate investing in a prime location earn you:
- High rental income.
- Positive cash flow return.
- High rental demand.
- Low vacancy rate.
- High occupancy rate.
Do not invest on a whim; formulate a business plan, acquire the right knowledge, seek advice from the right mentors or professionals, do your due diligence, and invest time and effort in understanding the market, learning from the best real estate investors, real estate blogs, and real estate books to maximize your returns and long-term rewards.
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