Rental properties are still great investments for diversifying
Anna Johansson
May 24, 2018
Wholesaling and flipping can be a great way to enjoy real estate investments in the beginning, but if you’re ready to put away the stress of finangling the market and making small profits, rent estate could be your next big move.
Rental properties yield wealth and ease
Many seasoned investors choose to diversify their rental portfolio with rental properties. They like its reliability and the constant demand in today’s market. It’s not a guaranteed profit for even the most seasoned of investors, but it’s still a great opportunity.
Justin Pierce, a successful investor and contributor to the Washington Post, recommends making one rental property purchase a year to build wealth. According to his calculations, a carefully planned operation could build $37,000 in wealth after just two years, thanks to market appreciation and profit from rental payments.
The benefits of rental property investments
While it may not be feasible for every investor to make such a frequent real estate investment, Pierce’s algorithm is a good indicator of the kind of wealth that awaits the stalwart rental property investor. Here are some of the top reasons for investing in rental properties:
- Purchase with leverage
Leverage is one of the biggest reasons that investors have so much success with rental properties. This means that you don’t need a huge savings account to purchase your home. You can purchase it using others’ money, oftentimes with little or no down payment.
This reduces some of the risk for you when compared to other types of investments. You aren’t dropping a wad of cash into an investment that you might never see again. Instead, you’re investing the money of others with the potential to both repay it and profit.
- Relatively stable and predictable
The real estate market is more stable than many investment markets. We’ve seen housing markets crash, and the recent wound of 2008 is still fresh in many minds. However, when put in perspective, that crash is far from a standard experience. In reality, the real estate market is less likely to crash than many other stocks, markets and bonds you could invest in.
What’s more, the rental market is more stable than other types of real estate investing, like fix and flips or wholesaling. There are more people interested in renting now than at any point in history, and the market has simply exploded.
It’s also more predictable. There’s a cycle that follows real estate markets in any neighborhood, namely the boom and bust cycle. It’ll never go away, and when you get used to dealing in real estate, you’ll have a sixth sense for when it’s time to invest and when you should get out.
- Simple and straightforward investment
Although various unexpected costs can throw you for a loop, the general concept of investing in rental properties is pretty straightforward. You purchase a property, service it and rent it out for profit. You’ll set your profit margins based on factors like current market rates. In certain markets, your cash flow will be higher.
It’s also easy to learn. There are dozens of learning formats available, including books, webinars, online courses, videos and blogs. With self-discipline and dedication, you can easily learn the ins and outs of rental investments.
- Better potential returns
You won’t always make more money from your rental properties compared with other investments in the now, but focus on the long term. You’re paying off your mortgage while pocketing the extra, both of which can generate significant wealth.
There are also a variety of ways to make a profit. There’s cash flow, appreciation, tax benefits and loan pay down. The opportunities to capitalize on your investment make it that much easier to see revenue.
Is it right for you?
There are many benefits to diversifying your portfolio with rent estate, but it’s not for everyone. It requires planning, research, creativity and time that you may not have.
Not every investor has what it takes to make a successful rental income, nor is every investor interested. If you’re not passionate about it, is it the right path for you?
You’ll also want to evaluate your current situation. Do you have a good credit score and debt to income ratio? Do you have enough savings to make the down payment? Do you know how you’ll manage your property?
If you’re excited about it and are willing to work out the details, rental properties can make an excellent revenue stream for you. It’s worth considering as you look to diversify your portfolio.
Disclosure: I do not own any of the stocks mentioned in this article.
