Investing in residential income properties is one of the best things an investor can do. Buying an income property is how many investors begin their career — and for good reason. Learning how to invest in real estate which generates profit can be one of the single best decisions you make in your career. So let’s go through the basics: What are residential income properties, how do they work, and most importantly: How can you find a high-income property right now?
What Is a Residential Income Property?
Income properties, on the most basic level, are assets that produce a revenue stream for real estate investors. In the context of residential income properties, this usually comes in the form of monthly rent payments from tenants.
How Does Income Property Work?
Most real estate investors will borrow money in order to finance their investment property. You’ll need to pay back a certain sum of money to your loan provider at the start of each month, which varies depending on the size and terms of your loan.
But you’ll also have a source of income, which is the monthly rent payments made by tenants. The success of residential income properties, therefore, depends on having more money coming in through rent payments than money going out to repay your financial lender. The excess cash at the end of that process is your positive cash flow as an investor!
Once your mortgage is paid off, you can expect much higher returns. At the end of the long loan repayment process, you’ll have full ownership of your residential real estate, and its potential for income goes up significantly.
This would also be a fantastic time to consider reselling your investment property. You’ll be benefitting from a significant amount of time for property appreciation to take place, and its value may be significantly higher after years have passed. At this point, it can be resold for much more than it was initially purchased.
Related: How to Create Rental Property Income: 12 Tips
Why Should I Invest in Income Property?
Hands down, the biggest advantage of income properties is how quickly they create profit for investors. Upon purchasing an income property, you may first need to invest in maintenance and upgrades. The amount of cash needed for the process should be thoroughly studied before purchase since it can cut into your return on investment.
You can then move on to searching for tenants, which can be achieved through a wide variety of real estate marketing techniques. For consistent rent payments, you’ll want to find reliable tenants and lock them in with a mutually-beneficial lease agreement.
Finally, once you’ve secured the investment property, made it livable, and found tenants, everything is in place to make money from renting out an income property!
How Can I Know If an Income Property Will Be Profitable?
The measure of success for real estate residential income properties is their return on investment. This figure generally represents the ratio between a property’s income and its costs.
Find out how much your property can earn as a short term rental using our free Airbnb calculator.
There are a large number of expenses that real estate investors need to be aware of when making an investment. These include maintenance costs for public areas of the property, interest on borrowed money, marketing costs when searching for tenants, and others. All of these need to be carefully studied and anticipated ahead of time in order to properly predict your return on investment. Investing in real estate requires a lot of diligence, and all costs should be studied far in advance.
In addition to rent payment, there are a number of things that real estate investors can do to boost cash flow. This can include installing vending machines, laundry facilities, or renting out parking spaces. When trying to maximize return on investment, investors need to be conscious of how much money is coming in and going out from their residential income properties.
How Do I Find Rental Income Property for Sale?
One of the hardest parts of an investor’s job is finding the right property. Learning how to find real estate residential income properties is therefore crucial in the early stages of becoming a real estate investor.
Related: How to Find the Best Income Property in 2020
The first step is learning what qualifies as a good real estate investment. You’ll mainly be after a property that can offer a high return on investment, favorable cash on cash return, and an optimal capitalization rate. Brushing up on these basics is crucial in order to find out which investments will be profitable and which ones won’t be. Smart decisions can only be made by knowing the right numbers.
Thankfully, each of these calculations can be completed fairly easily with the right tools. Consider using a premium online tool, such as Mashvisor, in order to quickly run the right analytics on any property you’re considering.
One of the best tools available in this regard is Mashvisor’s Property Finder. Not only will this tool give you thousands of options for investment properties for sale, but it will also provide you with detailed information about their investment potential.
Mashvisor will instantly provide you with important figures, like the aforementioned CoC return, ROI, and cap rate. But you’ll also have other great information like the income viability of your investment as a traditional rental versus an Airbnb rental. Many investors are surprised to find that Airbnb might actually be a more profitable real estate investment strategy, depending on the location and appeal of a property.
Another great tool for finding income properties available to you is the Heatmap Analysis tool, which provides advanced real estate statistics in the form of a map. You can take a bird’s eye view of any city in the US and have a detailed breakdown of the residential real estate investment potential in each neighborhood, and then for each property.
Related: Best Property Search Tools for Investors in 2020
Running these numbers on your own is feasible, but the process can take a substantial amount of time. Therefore, as a real estate investor, online tools which run these numbers for you can make your life a lot easier, and ensure the success of your investment.
The best tip for finding profitable residential income properties is knowing the tools you have available to you.
Bottom Line
Residential income properties are an incredible way to make money in real estate. Learning how to find residential income properties for sale is an important skill for any investor. But thankfully, knowing the amazing resources available to you, you can be on your way to a fantastic investment.