A lot of aspiring real estate investors are contemplating whether or not purchasing rental properties in 2018 is worth their money. Looking for a straightforward answer? Definitely!
Ask any real estate expert in the industry and they’ll tell you all about the great benefits and perks that you’ll get to enjoy after purchasing rental properties. Even though becoming a real estate investor does have its challenges – which you should read more about – it’s still considered a great career path for making money in today’s economy. If you’re wondering why we strongly suggest investing in a rental property, just keep reading.
Purchasing Rental Properties Gives You a Steady Income
First and foremost, rental properties are the most common type of real estate investing because they can be an excellent source of passive income. Property investors earn money from the monthly rent they collect from tenants which, in turn, creates cash flow. In real estate investing, cash flow is the difference between monthly rental income and monthly expenses. The fact that a rental property generates cash flow is a perk that you don’t enjoy when purchasing other types of investments, like stocks for example.
Related: 8 Reasons Why You Should Buy an Investment Property Instead of Stocks
A real estate investor uses this cash flow to cover his/her rental expenses like mortgage, taxes, insurance, etc. You might also save your cash flow to use as a down payment to buy another investment property. Keep in mind, though, that in order to do so, you must find positive cash flow properties! Click here to learn all about positive cash flow for purchasing rental properties.
Note: Make sure to check out Mashvisor’s Rental Property Calculator. This tool provides property investors with numbers to evaluate the profitability of an investment property, one of which is the rental income. And if you need a free tool for estimating the potential Airbnb rental income of a specific property, you can use Mashvisor’s Airbnb calculator.
You Have the Opportunity to Increase Value
Real estate investment properties are physical assets, meaning they will always have a value, making them a safe investment option. Moreover, there is something called real estate appreciation – another benefit and a way to make money when purchasing rental properties. Appreciation basically means the longer a real estate investor holds an investment property, the more value it’ll gain. This means you can sell the property for a higher price and make a decent profit!
There are some factors that affect the value of an investment property and determine how much it will appreciate, mainly the location and time factors. The land where an investment property sits on is what technically increases in value, and some locations have a higher appreciation rate than others. In addition, real estate experts agree that in order for investment properties to truly appreciate, property investors need to hold onto them for at least 10 years! Thus, to increase the value of your investment, make sure to keep these factors in mind when purchasing rental properties.
Related: 7 Factors Affecting the Value of Your Rental Property
You Have a Tool to Fight Inflation
Many industries and economies fear and can suffer from inflation. However, when purchasing rental properties, you are at least in line with inflation! Real estate is known to be a hedge against inflation. When inflation occurs, property investors control rental prices and can adjust them to add value to the rental property. In addition, your fixed mortgage payments will not be affected during the times of inflation. This means that while your rental income will increase, your rental expenses will remain somewhat the same. This will increase your chances of generating positive cash flow!
Having said that, purchasing rental properties during the times of inflation is not a smart investment decision. This is because real estate sellers can list their properties for a higher price, especially in a real estate market with a low supply of investment properties. Therefore, make sure you understand the causes of inflation and buy an investment property before it occurs.
Related: Buying Rental Property: When’s the Best Time?
You Can Accelerate Growth with Leverage
Last but not least, one of the best benefits of purchasing rental properties is using leverage. This is a tool that a real estate investor can use to grow his/her investment portfolio through purchasing rental properties with a mortgage. Some property investors are not in favor of taking a mortgage loan and opt for buying with all cash. However, a mortgage will help you buy more investment properties in a shorter period!
Banks and other financial institutions are more than happy to finance purchasing rental properties. All you need to do is put some cash up front (down payment) to become a real estate investor. This gives you the leverage to buy investment properties with little money down – typically 20-25% of the purchase price. The more you own, the more rental income you’ll generate which covers your mortgage payments and other rental expenses.
Looking for an investment property? Click here to use our Property Finder Tool to find the best one in the city of your choice in a matter of minutes!
Keep in Mind Though…
There are a few things mentioned throughout this article that property investors should remember, so it doesn’t hurt to bring them up again here:
- Succeeding in real estate is all about investing in the right location! Make sure you find a location with high demand that offers positive cash flow investment properties.
- To guarantee high appreciation for future profits, invest for the long-term keeping the location in mind as well.
- Even though inflation is on your side as a real estate investor, make sure you’re purchasing rental properties before (not during) times of inflation.
- Property investors can use leverage to buy more investment properties only when taking out a mortgage.
Finally, if you’re thinking of purchasing rental properties but you’re not sure where to start, use Mashvisor’s real estate investing tools – like the Property Finder and Rental Property Calculator – to analyze different locations and find the best investment properties in just 15 minutes. Click here to learn more about our product and how we help property investors make smart investment decisions!
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