If the idea of investing in real estate, whether it’s brick and mortar or a stylishly-painted siding, excites you, welcome to the club.
Real estate investment has always been a popular choice for Americans to build wealth. Census data reveals that over 70% of single-family rental properties are currently owned by individual investors instead of corporations.1
Additionally, Bankrate surveys over the past decade have consistently shown Americans favoring real estate for long-term wealth growth over other investment options. The latest survey by Bankrate highlights the enduring attraction of real estate due to its potential for strong return on investment, particularly for investors committed to a property over time.2 It also serves as a hedge against inflation, with rental income and property values typically rising alongside overall prices.3
With rising interest rates nudging some prospective homebuyers out of the market, a new wave of individual investors are exploring the expanding rental market as a lucrative opportunity.4 Interest in purchasing a home for both residence and rental purposes is growing, especially among buyers seeking to ease their mortgage burden.5
Wondering if you’re suited for these real estate investment prospects? Here are three indicators that owning a rental property may be a good fit for you.
1. YOU’RE A HOMEBUYER WHO WANTS HELP WITH THE MORTGAGE
For those seeking an innovative approach to homeownership without breaking the bank, consider “house hacking.” This strategy, gaining popularity among first-time homebuyers and cost-conscious investors, involves purchasing a home to live in while renting out a portion to one or more tenants.5
House hacking is often more accessible than traditional real estate investing, as it may require a lower credit score and down payment to qualify for a mortgage. Some government-backed mortgage programs even allow for purchasing a primary residence with minimal to no down payment.6 In contrast, buying a non-owner-occupied property may necessitate a down payment ranging from 15% to 25% for loan approval.7
Income from renting out part of your home can help cover your mortgage and related expenses. Depending on your arrangement, you might also reduce utility costs by splitting them with tenants or adding a portion to their rent. Additionally, house hacking offers tax advantages and deductions exclusive to landlords.8
When you’re ready to begin your search, we can assist in finding an ideal property for house hacking, such as a house with a walkout basement, a multifamily unit, or a property with ample outdoor space for an accessory dwelling unit or garage apartment.
2. INVESTING FOR STEADY AND RELIABLE INCOME
If you’re seeking an additional income stream without the hassle of managing live-in tenants, a dedicated long-term rental property could be the ideal choice. Beyond monthly earnings, owning a rental home adds diversity and stability to your investment portfolio, fostering long-term wealth accumulation.9
Historical data from the Federal Reserve underscores the prosperity of real estate owners. For instance, the median home value nearly tripled over 30 years by early 2020. Amid the pandemic-driven real estate surge, average home prices spiked by almost 50% in just two and a half years.10
While predicting appreciation rates can be challenging, investing in a property with positive cash flow—where rental income exceeds expenses—is a prudent strategy. This approach ensures a monthly profit, irrespective of the property’s value growth pace.
Despite current higher mortgage rates posing profitability challenges for landlords, financing options are available for almost 60% of real estate investors. Economist Thomas Malone from CoreLogic highlights the increasing participation of small investors in meeting the rising demand for rental housing, driven by many prospective buyers being priced out of the purchasing market.4
If you’re interested in exploring residential rental opportunities that align with your financial goals and appeal to renters, feel free to contact us for a complimentary consultation.
3. MAXIMIZING POTENTIAL RETURNS AS AN EXPERIENCED INVESTOR
Another lucrative strategy for generating income from an investment property is converting it into a short-term vacation rental. However, this approach comes with risks due to tightening rental regulations in some areas and market oversaturation concerns in others.11,12
If you’re a seasoned investor comfortable with some level of uncertainty, venturing into short-term rentals could offer attractive returns.
By identifying the right property, you stand to earn substantially more through short-term rentals on platforms like Airbnb compared to long-term leasing options.11
To maximize occupancy at premium rates, marketing expertise, hospitality skills, and business acumen are essential. Alternatively, hiring a professional property manager is an option, albeit with associated costs.
The pandemic saw a surge in the vacation rental market, leading to challenges for inexperienced investors. Consequently, there’s an opportunity to acquire such properties, necessitating available funds and a willingness to learn the dynamics of the industry.12
We can assist you in identifying investment prospects in our local market or connect you with an agent in your preferred area for further guidance.
BOTTOMLINE
Real estate investment offers long-term wealth-building potential and supplementary income. To optimize your investment endeavors, strategic planning is crucial.
Contact us to schedule a consultation and delve into your objectives and financial plan. We’ll help pinpoint high-income neighborhoods, highlight rental-suited properties, and collaborate on devising a tailored investment strategy.
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
| Before you take the plunge, make sure you can answer “YES” to these three questions: 1. Are you ready to be a landlord?Owning a rental property can take a lot of time and energy. You’re not just buying passive income, you’re also building sweat equity since the time you spend maintaining, marketing, and managing your rental can add up quickly. So be prepared to do some soul-searching to ensure you’ll not only flourish as a landlord, but actually enjoy it. If you want to invest in real estate but aren’t prepared to put in the day-to-day effort required, we can refer you to a property management service for help. 2. Can you afford to invest in real estate?The last thing you want is to get over-extended with your new real estate venture. Besides the cost of purchasing the property, you’ll need to consider additional expenses, like property taxes, insurance, administrative costs, and maintenance and repairs. You will also need a cash reserve for unexpected issues or potential vacancies.We can help you run the numbers to determine whether you can charge enough rent to offset your expenditures. 3. Have you found the right income property?Even if you’ve got your finances in order and are emotionally ready to invest, your success as a landlord will also depend on the property you buy. The criteria for a good rental home and a good family home are often different, so it’s important to lean on professionals for advice. We can help you find an ideal rental property, taking into account your budget, risk appetite, and investment goals. If you decide to invest in a different area, we’ll connect you with an agent who’s more plugged into that community. Reach out today to schedule a free consultation. |
Sources:
- PR Newswire –
https://www.prnewswire.com/news-releases/census-data-show-individuals-continue-to-own-largest-share-of-single-family-rental-homes-301725024.html - Bankrate –
https://www.bankrate.com/investing/survey-favorite-long-term-investment-2022/ - Forbes –
https://www.forbes.com/sites/forbesbusinesscouncil/2022/04/14/why-income-generating-real-estate-is-the-best-hedge-against-inflation/?sh=1081ce921746 - MarketWatch –
https://www.msn.com/en-us/money/realestate/another-challenge-for-homebuyers-more-investors-are-snapping-up-homes-and-40-of-them-are-using-cash/ar-AA1foWSB - Realtor.com –
https://www.realtor.com/advice/buy/on-the-house-house-hacking-your-way-into-your-first-home/ - NerdWallet –
https://www.nerdwallet.com/article/mortgages/government-home-loans - LendingTree –
https://www.lendingtree.com/home/mortgage/down-payment-for-rental-property/ - Quicken Loans –
https://www.quickenloans.com/learn/house-hacking - Investors Business Daily –
https://www.investors.com/etfs-and-funds/personal-finance/rental-properties-investing-experts/ - St. Louis Fed FRED Economic Data –
https://fred.stlouisfed.org/series/MSPUS - Story by J.P. Morgan –
https://story.jpmorgan.com/real-estate-news/thinking-about-investing-in-short-term-rentals-heres-what-to-know - Skift –
https://skift.com/2023/07/21/short-term-rental-saturation-leads-to-a-correction-and-lots-of-home-sales/