There are many ways to invest in real estate, but one way which typically generates income is through purchasing rental property. Sometimes people buy rental property to fix up and quickly sell, or flip. Another option is to invest in a property for the long-term and rent it out, which is what we will focus on.
Two types of rental property return
The property can appreciate over time, and with improvements made by the owner, the overall property value will increase. As the mortgage is paid down, equity increases.
An investment property owner also has the potential to realize an ongoing return in the form of positive cash-flow on the investment. This is earned by renting the property out to tenants for monthly payments that exceed the owner’s overall monthly expenses to maintain the property.
What makes financial sense
Currently, attractive real estate financing is available for many borrowers. This can offset some of the higher real estate prices we are seeing today.
Calculate in your cost to operate the property, including loans, taxes, insurance, maintenance, vacancies and property management. Balance that against anticipated income.
A worthy investment means greater net cash flow and return on investment (ROI).
Determining the possible ROI of an income-producing property will require you to make estimates on market rental rates, vacancy rates of similar properties in the area, ongoing expenses for maintaining and operating the property, and other variables that might change at any time.
We would be happy to give you an estimate on property management costs for a rental you are considering purchasing or have already purchased.
Keep in mind real estate markets do fluctuate.
Locating a good rental property
Consider the neighborhood when searching for an investment property. If you’re looking for a residential rental property — such as a single-family residence or a small apartment complex — you may want to focus your search within neighborhoods with homes appreciating in value, low crime rates and well-rated schools.
Is real estate investing right for you?
You should consider whether you want to be a landlord, and what that entails, or farm this responsibility out to a property manager. It is important to understand that rental property investing carries the risk of loss and there are no guarantees of a return. However, long-term real estate investing can be quite lucrative.