When it comes to investing, those seeking to generate wealth have numerous options, whether the more hands-off stock trading or labor-intensive, highly advanced crypto trading. However, one investment strategy is a proven winner, weathering the test of time: real estate investment, particularly rental property investment. One important factor that landlords often overlook when doing property investment is how do landlords report to credit bureaus. Landlords have the opportunity to report rental payment history to credit bureaus, which can have significant implications for their credit scores and financial future.
There are a plethora of options available, including renting commercial real estate to small businesses or providing necessary housing for families in single-unit homes; however, they all share similar pros and cons. Today, we’ll explore some of the benefits and drawbacks of growing your wealth through real estate investing, as well as some helpful tips to get started.
Housing rentals refer to the process of renting out a residential property to tenants for a specific period of time, in exchange for a rental fee. This can include apartments, houses, townhouses, or any other type of dwelling that is used for residential purposes.
Pros of Rental Property Investing
Real estate investing remains America’s most popular investment option; however, only 12% of the population has actually delved into rental property, perhaps because of the high entry costs. Why do so many people believe it’s the best way to build wealth? Let’s take a look.
You’ll Build Passive Income to Weather Economic Downturns
One of the best things about buying rental properties is that you can develop a good, steady passive income that can help you stay afloat should anything happen to your primary source of income. Downsizing and layoffs can happen in any sector, and it’s vital that you have a safety net that can ensure your assets remain secure no matter what may come.
It’s a Great Way to Store Wealth
Million and billion-dollar investors know that the best way to keep your wealth is to put it in something that is almost guaranteed to appreciate over time – such as real estate. Placing money in rental real estate doesn’t just provide you with a consistent income, but it also grows your wealth in a way that simply can’t be destroyed. It can be likened to merely managing a furnished rental. Stocks may plummet, or a bank may cancel your CD, but rental real estate is almost assured to grow over time, as people will always need housing and workspaces.
With a real estate ROI calculator, you’ll be able to see what you will get back from your investment year-over-year; you’ll see that it’s much higher than what you could expect from other investments, making it clear that real estate is a winning choice.
The Equity Amassed Can Be Used to Fund Your Retirement
Since rental real estate is generally considered to be a long-term investment, you should think ahead regarding exactly what you can do with this money in 20, 30, or even 40 years. You could sell the property to get a lump sum that you’ll be able to use to fund your lifestyle, or you could even sell your own home and downsize into the rental property, should you choose. Having that option can provide security as you move toward your golden years, sure that no matter what happens, you’ll have a place to live and money in your bank account.
Cons of Investing in Rental Properties
Of course, no investment is perfectly safe – nor is it entirely pain-free. While trading in stocks means being subject to the whims of the market, real estate investment requires more sweat equity, as well as a keen eye for a good deal.
There’s a High Cost to Buy Rental Property
There’s no getting around the fact that you need to have money to make money, especially in real estate. Those who only have a few thousand dollars to spare may find the large down payment necessary for a rental property cost-prohibitive, leaving them with no option but to invest in less productive funds until they can gather the money for a down payment.
You Need to Carefully Research Your Options
While most properties will provide at least a modest return on investment, some are; unfortunately, money sinks – and this may not necessarily be obvious upfront. Things like bad electrical wiring, water damage, and foundation issues can be both expensive to repair and difficult to discern at first glance, which is why you need to schedule a thorough home inspection before committing to any property. Should you not do your research, you may find yourself out even more money than the down payment.
It Can Require a Major Upfront Effort
While rental property will eventually become mostly passive income, only necessitating minor repairs the tenants may need, there can be some serious investments of time and energy – not to mention money – when you first purchase the property. Things like fixing cabinets, having floors refinished, painting walls, and wooing tenants all require you to contract with good workers and effectively advertise your building, which can take away from your primary job. You should expect to put some work in when you initially purchase the property, recognizing that it’s a way to protect your investment and ensure you get a good return on investment.
Real estate is an excellent opportunity for new investors who have the funds to purchase a property: it provides great long-term benefits and helps you develop a strong passive income that can be reinvested or simply used to finance your own needs. However, it’s important to understand the downsides and to perform your research in order to ensure you’re getting a good deal. Get in touch with experts, investigate every property, and rely on useful calculators to assess every opportunity, and soon enough, you’ll find yourself with a great rental property that will serve you well for years to come.