Owning a rental property is a great way to build long-term wealth through passive income. As interest rates continue to stay at near-record lows, now is the time to consider an investment. Home values are rising across the country which creates a need for affordable rental housing. Renting is a desirable lifestyle for many generations of individuals and young families. Join us as we take a look at various investment property benefits landlords can take advantage of now!
Investment Property Benefits for Landlords
Maybe you have considered investing in rental property but were hesitant to take the plunge. It is true that, as with any investment, there is some risk involved. That said, there are many investment property benefits as well. Let’s take a look at a few reasons to become a rental landlord below.
- Rentals are a Source of Passive Income
- Increased Property Appreciation
- Added Flexibility
- Be Your Own Boss
- Diversify Your Investment Portfolio
- Someone Else Helps Pay the Mortgage
- Tax Write-Offs for Rental Properties
Rentals are a Source of Passive Income
This is an attractive bonus for investors looking to diversify their investment portfolios. Rental properties can provide a source of monthly income for a nominal amount of effort. Whether looking to generate some income on the side or invest as part of a larger portfolio, rentals are a worthwhile choice for many investors. However, due diligence is key to determining the profit potential of each property before purchase.
Increased Property Appreciation
Rental properties, like other real estates, appreciate over time. Investors can use this appreciation value to purchase additional properties or sell existing properties when it best suits their financial goals. Appreciation does vary from location to location.
So, it is important to research recent sales and historical trends in any area you wish to invest in. Additionally, understanding appreciation aids individuals in properly using leverage to their advantage. Leverage is when you purchase with a fraction of your own money and mortgage the rest.
What happens if you need to sell, but the market is not ideal? Utilizing the property as a rental allows you to generate income while waiting for the most beneficial time to sell. Another benefit is if your circumstances change, you have the option to move back into the property. Be sure to research your local jurisdiction’s requirements for a proper notice when the property is currently occupied and you need to break the lease.
Be Your Own Boss
As a rental investor, you determine which properties to invest in, set your own hours, and manage your rental business’s day-to-day. For those who do not want to commit the time needed, hiring a professional property management company is a great alternative. That way, someone else handles those pesky maintenance calls, paperwork, and rent collection, which frees you up to search for the next great deal!
Diversify Your Investment Portfolio
It is no surprise that diversifying your financial portfolio can be beneficial. By spreading your financial future across different lines of investment, you help to reduce risk as opposed to “putting all of your eggs in one basket.” Even in an up and down market, most experts agree that real estate is a good investment.
Someone Else Helps Pay the Mortgage
When investors buy a great rental investment property and have run all of the numbers, that profit works to your advantage. The monthly rent should cover the mortgage payment whenever possible while still leaving some profit after expenses. Therefore, using the tenant’s rent to pay down the property debt builds wealth for the owner. Additionally, over time, owners can access more of the home’s value by refinancing or selling.
Tax Write-Offs for Rental Properties
Another benefit to rental property ownership is the dedicated tax benefits. These tax incentives help keep more money in your pocket at the end of the year. Some of the common real estate write-offs may include:
- Mortgage Interest
- Property Taxes
- Maintenance and Improvements
- Legal or Professional fees
How to Mitigate Risks in Rental Real Estate Investments
Liability and risk can scare investors away, despite the many investment property benefits. However, there are ways landlords can mitigate or even prevent many of the common problems rental properties face. Let’s take a look below and learn more.
- Running the Numbers
- Thorough Tenant Screening
- A Lawful Lease
- Trust the Professionals
Running the Numbers
Ultimately, a property’s success or failure comes down to numbers. Running the numbers before purchasing a property to evaluate the potential profitability is essential. There are several factors investors need to consider, such as local competition, rental value, appreciation, renovation needed, and financing options. Therefore, take your time to be certain you do not overpay for property likely to underperform. The real estate website Zillow offers a wealth of information and online estimators for landlords.
Helpful Tip: Need more information on how to choose a profitable rental property? Check out our blog.
Thorough Tenant Screening
A landlord’s first defense against the dreaded “bad tenants” is a comprehensive screening process. This involves income verification, criminal background check, rent references, and credit check. While all of these factors contribute to your final decision, pay close attention to the references. Take the time to call previous landlords and inquire about the tenant and their previous residency. This can offer a wealth of information on what to expect and how they will treat your property.
Helpful Tip: Need more information on tenant screening best practices? Check out our blog.
A Lawful Lease
The lease agreement is the single most important document to a landlord and tenant relationship. Unfortunately, with complicated federal, state, and local laws, landlords may find themselves adding verbiage that is unenforceable. Not having a legally binding lease opens an investor up to disputes, property damage, and discrimination liability, to name a few. Therefore, have your agreement reviewed by an attorney before putting it into use. This ensures you and your tenants are protected. Additionally, take the time to review important lease clauses with your tenants as they sign to ensure understanding of the terms.
Trust the Professionals
Sometimes the most important thing an investor can do is invest in competent professionals to support their financial ventures. In the rental industry, knowledge, connections, and experience are invaluable, especially to those trying to break into the game with their first investment property purchase. Consider hiring these important parties below to help along the way.
- Realtor with Investment Experience – Before you start your search for your next big property deal, hiring a licensed realtor is the first best step. Realtors have the industry knowledge and inside connections, investors need to find and move quickly on the best deals. They guide you step by step through the buying process while helping you reach the financial metrics you are looking for. Finding a realtor familiar with buying for investment is a bonus but remember, you must still complete your own due diligence and make sure the property matches financial goals.
Helpful Tip: Need more advice on finding an investor-friendly realtor? Check out our blog.
- Property Management Firm – Rental property is a business, and with that comes day to day responsibilities. Not every investor or landlord wants or has time to handle these more tedious tasks. However, being hands-off requires a great deal of support. Therefore, the best way to maintain control while still having free time is to enlist a third-party property manager. This can be an individual or a firm, so research carefully to find the best fit for you. Check and see what their fees cover and whether the fees are worth the service they provide. A great property management firm will have transparent fees, dedicated staff, low eviction rates, and a comprehensive marketing, leasing, and maintenance process.
Helpful Tip: Need more advice on choosing a qualified property manager? Check out our blog.
Savvy landlords understand there are investment property benefits along with some degree of inherent risk. That said, real estate has long been widely thought of as a sound investment. As we head into some uncertainty surrounding COVID-19 and the 2021 market, one thing is certain; individuals will always need a place to live. Investing in rental property can prove to be beneficial both personally and financially.
Part of being a successful landlord is having the right support around you. If you choose the right property management company, you’ll keep quality tenants (and rents) coming in. Bay Property Management Group provides owners full-service rental management with a less than 1% eviction rate. Our tried and true methods for leasing, maintenance, and screening allow property owners to rest assured while we handle the day-to-day. Give us a call today to learn more!