The Best Way to Invest in Real Estate: Understanding the Value of Rental Properties

The Best Way to Invest in Real Estate: Understanding the Value of Rental Properties

What if you’ve been completely wrong about real estate investing?

Most investors focus on the idea of “flipping” a house. It sounds really simple: buy low, fix cheap, and sell high.

However, constantly buying and selling brings a lot of annoying headaches. And it turns out that rental properties are secretly the best way to invest in real estate.

Don’t believe it? Keep reading to discover the reasons why!

The Power of Leverage

One of the reasons we love investing in rental properties is that you can get started quickly. This is thanks to the power of leverage.

For example, you don’t have to have $100,000 on hand to buy a $100,000 house. You can simply put 10% down and then borrow the rest from a lender.

If things go well, you’ll be able to pay that lender back pretty quickly. And you will do so while enjoying an investment that is far easier than something more traditional like the stock market.

Just don’t forget to calculate the cost of any repairs or additions you plan to make.

You Have the Power

Most people looking into rental property investing don’t just see a big payday. They also see an escape from the nine to five “grind” of a regular job.

Once you start investing, you become your own boss. And while things like annoying tenants may try your patience, the full experience is very rewarding for you.

You can personally make an old home look new again with a hard day’s work. And you can use your own mechanical know-how to save thousands of dollars on hiring various repair people.

If you’re ready to ditch the old job and the old boss, then you will find this to be the best investment of your life!

Steady Income

Want to hear a secret? The best thing about selling a house is also the worst thing about selling a house.

Once it’s sold, you get all of the money upfront. But that can be a bad thing as you must cautiously invest it and make the money last as long as possible.

By contrast, investing in rental properties produces a steady stream of income for you and your family. In this way, you get to enjoy the main benefit of a normal job (that steady paycheck) without ever having to clock in!

Easier Than You Think

The main reason that people hesitate to start investing in rental properties is that they think it will be too hard. This is incorrect, and getting started is far easier than you might think.

It’s true that there can be a learning curve as you figure out how to fix various issues inside a home. But you can master most of these problems by watching a “how-to” video online and then buying some cheap tools.

Honestly, the biggest hurdle is usually the paperwork involved with buying properties. And most investors already own their own home, so they are no strangers to the paperwork.

Stable Market

Any kind of investment brings the same worry to investors. “What,” they ask, “if the market falls through?”

It’s true that instability in the stock market has made many investors lose a lot of money. However, we have some good news: renting properties is one of the most stable markets in the world!

Simply put, people will always need a place to live. And you can maximize your investment by buying properties in towns near military bases or university towns where you can count on a steady influx of new tenants.

Basically, unless people are actively leaving the town in droves, rental investment is an almost surefire bet!

A Real “Appreciation”

Here’s a rental lesson you may have already learned from your own home. For the most part, your properties are destined to appreciate in value.

That $100,000 home you borrowed money to buy? It won’t be that long before it is worth $110,000 or $115,000.

And it gets better over time. It’s not uncommon for that $100,000 home to be worth $160,000 or more after a decade has passed.

This lets you effectively raise rental rates or even consider selling the property when the time is right. This lets you enjoy the benefits of both renting and selling a home in a way that maximizes how much money you get out of it.

Diversify Investments

If you’re buying rental properties, you probably have other investments as well. And you’ve heard the same thing about investing your entire life: you need to diversify.

Investing in the same things over time is the financial equivalent of putting all your eggs in the same basket. And if those investments bust, the basket turns over and you’re left with egg on your face and no money in the bank.

However, rental properties are one of the safest ways to diversify your portfolio. This is primarily due to the appreciation of its value over time that we outlined above.

Consider rental properties not just a safe investment for you, but a safe investment in the security of your entire portfolio.

Pay Off the Mortgage

There are many things you can do with your steady stream of rental income. Here is our favorite, though: letting tenants take care of the mortgage!

For many of us, the mortgage on a house represents our greatest monthly income. And we’re on the hook to pay that amount over 15 or even 30 years.

Therefore, you might be nervous about the idea of buying one (or more) rental properties. Is it really safe to have another longterm mortgage hanging over your head?

However, if done right, you won’t be dealing with the rental property mortgage nearly that long. This is because money from the tenants is helping to pay down the mortgage every year.

Within reason, you can even raise rental rates and pay the mortgage off that much quicker. Then you have a home that is generating pure profit because it is fully paid for!

Best Way to Invest in Real Estate: The Bottom Line

Now you know why rental properties are the best way to invest in real estate. But do you know where to find some great homes?

Craig makes buying and selling homes easier than ever. To see how he can help you, reach out now!