Types of Rental Properties

How to Use Different Types of Rental Properties to Build a Portfolio

Investing in real estate is an excellent way to build wealth. Some people prefer to focus on flipping homes. Flipping a house involves buying a property in need of repairs. After the repairs are completed, an investor can sell the house for a massive profit.

Another strategy in real estate is to purchase a home to rent to tenants. Renting a home can provide various financial benefits for the owner. Not only does a rental home provide monthly income, but the home appreciates over time. Rental property investing can be challenging. Dealing with tenants can be tiresome, and various repairs may be needed to keep the property functioning. Then there are other expenses too, like rental home insurance, advertising, manual labors, and others. As a result, proper planning with rental properties is critical.

Homes for Cash Flow

There are two basic strategies for investing in rental properties. Some investors prefer to invest in homes that produce monthly cash flow. These homes typically do not appreciate over time. Another strategy is to buy a home that is expected to improve in value. These properties may lose money each month, but the appreciation makes up for the monthly loss when the property is sold.

When looking for a home that produces positive cash flow, analyzing the local rental market is critical. In many cities, the rental market has improved drastically in recent years for landlords. It is not uncommon for landlords to raise the rent each year in areas with a robust housing market. Learn more about the pros and cons of being a landlord here.

Homes that produce positive cash flow may be in areas with moderate crime rates. It is vital to purchase a home in an area that is safe. Although homes are less expensive in areas with high crime, investors will have a tough time making a profit with these houses.

Appreciation

Another strategy for real estate investors is to purchase a home for the expected appreciation. In a robust real estate market, this is a viable strategy that can earn investors a ton of money. Many investors target properties in areas that have an excellent school system. It is also essential to understand local economic trends. Houses in cities with robust economic growth typically appreciate much faster than homes in other areas.

One issue with this strategy is that the homes will not produce a lot of positive cash flow. Investors with a strong financial position may decide to utilize this strategy because the future appreciation gains are worth the wait.

Maintenance

Maintenance expenses should be budgeted for each property. Before buying a house, it is crucial to calculate the projected maintenance costs. Some people purchase an older home because the purchase price is much less than a newer home. However, once maintenance expenses are accounted for, buying an older home can be more expensive.

Property Management

Some investors choose to manage a property themselves. This is an excellent way to save money on property management fees. However, people who own multiple homes may find that all of their free time is spent dealing with tenants. As a result, hiring a property management company may be the best solution for some investors. A property management company is valuable for anyone who owns a property with a problematic tenant.

Although investing in real estate can be profitable, it is critical to spend considerable amounts of time analyzing various investment strategies.