Long-term rental properties are houses that are bought with the intention of owning and renting it out to other people. This can be an awesome investment and a continuous source of income. This is a great option for investors who are just starting out because it is easier than the flip technique. It is also a good way to grow your real estate portfolio and build wealth over a long period of time.
Investing in Rentals for Income
Rental properties can provide an ongoing return of investment as a monthly cash-flow, which comes in monthly when your renter pays their rent. You receive income by charging the renter more than what your mortgage payment on the house is.
For example, let’s say the mortgage on your house is $1,000 a month, maintenance on the property costs you $150 and property management costs you $200. You would have to charge more than $1,350 in rent each month to make any kind of profit.
Mortgages and costs will vary for each property, so make sure you look at rentals in the area to see if this price is normal, too low, or too high. This will help you determine if that certain rental property is worth it for you to buy.
How Do I Buy a Rental Property?
One way to buy a house that you are going to rent, you will need to apply for a rental property investment loan that requires a 20-25% down payment. You will also need to account for closing costs and budget for any repairs that may need to be taken care of before the property can be rented.
Another option for buying a house as a rental is to buy it as an owner-occupant. Taking this route will require you to actually live on the property for one year before you are able to rent it out. This means it will take you longer to start earning an income, but the up-front costs will cost you way less than an investment loan.
How Can I Find a Good Rental Property?
If you are looking for a residential rental property, it is best to look in neighborhoods, a small apartment complex, or maybe even a condo. Try to search for properties that are appreciating in value, have low crime rates, and well-rated schools.
The goal of a rental property is to maintain a positive cash-flow every month. Picking a property in a desirable area will enable you to charge a rent amount that will bring in more money than your expenses will cost you.
Another way to determine if a rental property is a good one is the 1% rule. To determine this, you will need to estimate what you can charge in rent and what your expenses may be to figure out what your estimated monthly cash-flow would be. Take the estimated monthly income and divide it by the purchase price of the property. If the answer is 1% (or higher), then this is probably a good investment.
What Type of Property is the Best Rental?
There are different types of properties like single-family homes, multifamily homes, commercial real estate, or even an AIRBNB. Each of these types of rentals can turn a profit for you, there isn’t really a “one size fits all” answer. How do you figure out which is best for you? Here are some quick descriptions of each type and what they can do for you.
Single-family homes are generally easy to finance. You then charge a rent that will cover the mortgage payment plus some. The tenants pay the utilities for the property, so you don’t have to worry about that expense. Renters also tend to take better care of the property because they want to keep it looking nice, and they don’t want to rack up any fees when they move out. Single-family homes are also easy to sell if you decide to move away from the area and don’t want to rent anymore.
Multifamily homes, such as a condo or apartment, can possibly provide a higher income rate. The landlord of these properties will usually take care of some of the utilities, yard maintenance, and keep up the parking lot. However, it is possible to have to rehab multifamily units than you would for a single-family.
Commercial Real Estate
Commercial real estate can be complicated because it will take some time for you to learn how the process works. They provide tons of financial opportunity, but they can also cost you a lot of money, too.
These types of rentals are becoming increasingly more popular. An AIRBNB is basically like a private hotel. You rent out an entire property for a certain price per night, and people will pay to stay there instead of at a hotel. You can make a lot of money with these properties, but they also require more management.
Benefits of Long-Term Investing
One of the main benefits of investing is the financial income that can come from it. Another benefit is that there can be huge tax advantages. You will be able to write off expenses like depreciation and mortgage interest. Another benefit is the equity that will come from the property. When tenants pay you their rent and you pay down your mortgage, you will start to earn equity when the value of the property is higher than what you owe on the mortgage.
There is a lot to be learned about investing in rental properties. It can be overwhelming taking in all of the information at one time, but if you take your time and take things slow, you will be able to process all of the information that will help you.
If you take your time to find the right location, determine the profitability of a property, and figure out your finances, you will be able to invest in a project that will earn you money in the long run.
See our Guide To Rental Property Loans
Global Integrity Finance is a nationwide, direct, hard money lender. They provide many different types of real estate investment products for brokers as well as borrowers. Located in McKinney, TX, they’ve been serving the community for 25+ years and now serves our entire nation. They truly have a comprehensive understanding of the mortgage industry unlike any other lender.