Everyone dreams of building a life free from financial stress. In today’s world, there are many ways to earn money, but some are a better investment of your time and resources than others. Is real estate one of the better investments? Fortunately, the one market that never falls short is real estate investing.
Buying a home is one of the biggest decisions to make in life. It may be the largest asset in your financial portfolio, yet many people do not consider purchasing a rental property. The investment potential of a rental property is higher now than ever and can be a great source of second income.
Before you consider taking the leap, let us help you understand the benefits of investing in real estate.
Use Someone Else’s Money
First of all, it is impossible to talk about real estate investing without talking about money. Many real estate investors were able to make their first investment because of leverage. Leverage means you do not need 100 percent of a property’s full purchase price when investing in rental property.
You typically only need to provide a down payment (with closing fees), and lenders cover the rest. When you do not plan to live in your investment, lenders require an average of 15% to 20% as a down payment for a single-family home. You do not need $100K sitting in your bank account to become a real estate investor, and that can be great motivation! Do not let a conservative budget scare you away from investing in rental property.
In addition, if you buy at the right price, the rent you receive should be enough to pay the mortgage, without continued monthly investment. You need to budget for repairs and maintenance as well, and months when the property is not rented. But as rents naturally increase, you will be able to generate a small profit on your rental. When this property is paid off in 15 to 30 years, the rent is nearly all profit except for taxes and repairs.
Rental Property is Always In Demand
According to the Census Bureau, more Americans are renters now than at any time in the last 50 years. Although the number of households in the U.S. skyrocketed by 7.6 million in the last decade, the number of homeowners stayed relatively the same. What does this mean?
More Americans than ever are choosing to rent instead of buy. More Americans than ever are demanding rental property locations. All you need to do is run a real estate market analysis to find locations with the highest rental demand.
While you can pay a company to run a real estate analysis for you, there is also the opportunity to do it yourself. First analyze the characteristics of your own potential property such as number of bedrooms, bathrooms, amenities, and square footage. Then find recently sold and rental properties in your area with similar characteristics. The average value of those homes, and the number of similar rental properties on the market in that area is a great starting point in understanding the demand in your area. Also check out the average value of similar homes currently on the market. The higher the demand, the more money in your pocket.
Relatively Safe Investment
The real estate market is not nearly as volatile as investing in a start-up business or the stock market. Property values and rents typically rise slowly over a decade, and very rarely drop dramatically. Real estate crashes of course can happen, but they are few and far between. As long as you are not selling during a downward slump, you do not lose much money as you still own the property. Any investment is risky, but real estate is perpetually one of the safest investments you can make.
Easy to Learn
This means it is time to learn the basics of rental property investing, but where do you start?
Luckily, real estate investing is not too difficult to learn without a formal education. Aside from becoming familiar with landlord-tenant laws in your state and city, much of the work you’ll be doing comes down to common sense. Compare this to the complexity of investing in the stock market and you’ll understand the appeal.
Becoming a landlord is a great way to learn the ropes firsthand, because you will then be involved in every detail of owning and managing a rental property. They say the best CEOs are the ones who started on the front lines of their business, and the same can be said for real estate investing. Take time to truly understand the day-to-day operations of managing a rental property. In your down time, read every real estate blog you can get your hands on (like this one!).
Protect Your Investments with Diversity
Another reason rental property is an amazing investment is the power it gives you over your own future. Diversifying where you invest is one of the cornerstones of smart investing. Real estate will round out a portfolio.
Further, you can diversity the type of real estate you invest in for even more protection, as there is a great deal of variety among real estate options in the market. You can choose to focus on multi-family homes, single-family homes, high end properties, vacation properties, commercial properties. With over 27% of the American population living in rental homes, the options are endless.
Last, but not least, is possibly the most important advantage of investing in rental property. Now more than ever, generations are tired of slaving away at nine-to-five jobs. Investing in rental property gives you the power to set your own goals – Do you want to move toward investing full-time and creating your own schedule, or do you want to keep your current job and use real estate as an extra source of income? The choice is yours.
Owning rental property also gives you the flexibility over how things get done. As you know, rental property comes with a lot of maintenance and oversight. Repairs, landscaping, and rent collection are just a few on the list. You have the ability to handle those tasks yourself or hire a professional property management team. In the beginning, you may choose to save money and do it yourself. This will also grow your skills and experience. Down the road, you may choose to invest in a quality property manager or property management team. For once, you have the flexibility and authority to make your own decisions.
At this point, it should be obvious that investing in rental property can be an amazing and successful experience. While rental demand continues to trend upward, consider using leverage to start small and learn the basics of rental property ownership and management. With the right mix of education and motivation, you can reap the benefits of becoming a real estate investor. The flexibility and diversity of being your own boss will feel priceless – even with more money in your pocket!