Real estate is considered one of the best and safest ways to invest your money. However, the real estate market is vast, and property investors have to decide among different property types and investing strategies. Nonetheless, many believe that residential real estate investing is the best way for a real estate investor to make money!
In this article, we’ll list the top 6 reasons why residential real estate investing is a great investment strategy, in addition to further explain how property investors actually make money from a residential investment property.
Why Residential Real Estate Investing Is the Best Way to Make Money
More Demand
People will always need places to live in, and if they cannot afford to buy residential properties, they’ll opt for renting them. As a result, residential real estate investing will never go out of style, and there will always be a huge demand for rental properties in any real estate market! More demand leads to more investment opportunities for property investors. In addition, in a real estate market where demand for residential real estate investing is high, a real estate investor is able to charge more as monthly rent, and also set a higher price when he/she decides to sell the rental property.
Easy to Finance
The second reason why residential real estate investing is the best investment strategy to make money is that residential investment properties are easy to finance. Financing is a concern for some property investors; however, it’s not as hard as some might think. The real estate market is vast, and a real estate investor will come to realize that there are numerous options for investment property financing. The best financing options for residential real estate investing are mortgage loans, hard money lenders, and private money lenders.
Using these financing methods, a real estate investor can finance buying a residential investment property with little or even no money! However, property investors need to keep in mind that each financing option has certain requirements and suits some types of residential investment properties more than others.
Related: Here Is Your Guide to Rental Property Financing
Buy Low and Sell High
The next reason on our list of why residential real estate investing is the best investment strategy to make money is the fact that a real estate investor can buy residential investment properties for a cheap price and sell them later on for a higher price. In the real estate market, there are many types of investment properties which real estate investors can buy below market value. These include foreclosures, short-sales, HUD homes, and fixer-uppers.
In residential real estate investing, these are sold for a cheaper price either because owners can’t keep up with mortgage payments or for being in a bad condition. Nonetheless, a savvy real estate investor can quickly make money from buying a cheap investment property, renovating it (or waiting until it appreciates), and selling it for a much higher price!
Low Vacancy Risks
This point is closely related to our first reason why residential real estate investing is the best investment strategy to make money. Since there is always demand for residential investment properties, property investors will have a larger pool of potential tenants to rent out to. As a result, a real estate investor owning a residential investment property faces lower vacancy risks! Moreover, even if property investors do face a vacancy, they’ll still be able to find a tenant right away with good marketing and advertising.
Appreciation
Another reason why residential real estate investing is the best way to make money is that it allows property investors to make a profit through appreciation. Real estate appreciation is the increase in the investment property’s value over time. In general, residential investment properties tend to appreciate at a higher and faster rate than other types of investment. Thanks to appreciation, a real estate investor can buy an investment property, hold it for 5-10 years, and then sell it for much more than the initial purchase price!
Related: How to Calculate Real Estate Appreciation
Thus, residential real estate investing allows property investors to make money in the short term (through the rental income generated from renting out the rental property and collecting monthly rent) and in the long term (through the profit made from selling the rental property later in the future).
Tax Benefits
The final reason why residential real estate investing is the best investment strategy to make money is the many tax benefits and deductions that come with buying a residential investment property. For example, the generated cash flow is tax-free. In addition, property investors can deduct mortgage interest, property taxes, operation expenses, insurance, and depreciation from their taxes. Not only that, but when a real estate investor sells a residential rental property and decides to reinvest the profits in another rental property, he/she will not have to pay the capital gains tax!
Click here to start looking for and analyzing the best residential investment properties in any city and neighborhood in the United States!
How to Make Money from Residential Real Estate Investing
Now that we’ve covered the many reasons why residential real estate investing is the best investment strategy to make money, let’s further explain how exactly property investors make money from a residential investment property.
Residential Real Estate Investing: Buy and Hold
This is a very traditional and probably the most common and most simple type of residential real estate investing. Buy and hold basically involves buying a residential investment property, leasing it for a long time period, and making money from rental income or long-term appreciation. The best types of residential properties to make money in this way are single-family and multi-family homes. The best way to finance these investment properties is through a mortgage loan.
Residential Real Estate Investing: Airbnb
Airbnb investment properties are similar to buy and holds but are rented out for short time periods (typically rented for less than 6 months). Residential real estate investing through Airbnb is increasing in popularity because it gives property investors more flexibility and, depending on the real estate market location, can even yield a higher rental income than buy and holds. You can estimate a specific property’s Airbnb rental income by using Mashvisor’s free Airbnb calculator.
Related: Real Estate Investing: Traditional vs. Airbnb Investments
Residential Real Estate Investing: Fix and Flip
This is the best way to instantly make money from residential real estate investing. Fix and flips are residential investment properties which are listed in the real estate market for a low price due to foreclosure, short sale, or being in a bad condition, and they need plenty of reparations and renovation. As mentioned, a savvy real estate investor buys these investment properties for cheap, renovate them, and then sells them for a much higher price, thus making a quick profit!
Residential Real Estate Investing: Wholesaling
House wholesaling is the best way to make money from residential real estate investing without direct property ownership! This investment strategy involves finding a seller of a rental property, writing a contract to acquire the deal, selling this contact to an end-buyerm and walking away with a percent of the profit. A real estate wholesaler, thus, makes money from residential real estate investing by acting as a middleman between a property seller and a property buyer.
Final Words on Residential Real Estate Investing
Residential real estate investing is the best investment strategy for beginner property investors due to its many advantages and the many ways a real estate investor can make money following this investment strategy. Mashvisor is an online platform which provides property investors with the best real estate investing tools and up-to-date information on anything real estate to empower them to make the best investment decisions. To sign up for Mashvisor to receive our blogs and offers, click here.
To start looking for and analyzing the best residential investment properties in your city and neighborhood of choice, click here.