The first step in investing in any asset is to be an expert on said asset. Experts say being well-versed in your chosen property investment before diving in and pursuing the endeavor is a must. At the very least, you should arm yourself with the knowledge about red flags and other questionable signs (read more) that often happens during investment frauds. After memorizing the warnings, it’s time for you to know about what kind of investment you’re trying to enter.
However, there are still many things to know and steps to take other than reading up about the warning signs and researching your chosen investment thoroughly. In this article, we’ll be laying down the pros of pursuing a rental property investment, along with much-needed tips and tricks we picked up along the way of our investment journey.
Reasons To Choose Rental Properties As Investments
1. Easier Loans, Higher Leverages
What is leverage when it comes to real estate? Leverage is the term used to describe the act of buying a property with someone else’s money to possess the said property for your use. Usually, leverage allows the investor to loan money from either the bank or a private money lender to cover a part of the capital needed. Although the investor has given only a percentage of the price, the property is already written in their name.
If you were to enter a bank or approach a moneylender to ask for a loan, you’d have higher chances of getting a yes if you’re planning to spend it on real estate. Even if you loan a large enough amount to cover 10-15 different properties, your chances of getting rejected are still at an all-time low. So you’d be wondering why, in comparison to stocks, gold, or mutual funds, real estate is a well-loved investment?
2. A Very High Return Of Investment
The particular reason for this circumstance is simply due to real estate’s high ROI as an investment vehicle. How does it give you, the investor, a high ROI, you ask? Keep in mind that ROI and high leverage go hand in hand, as the latter won’t happen without the former. Using borrowed money to use as capital means you only need to use a small percentage of your money. Thus your ROI increases in the long run.
In addition, the rent you collect from your tenants would cover the expenses for your loans, both marginal and interest. At the end of the day, your expenses and the money you owe the lenders are greatly exceeded by your profits, which gives you many opportunities to expand and spread your profit into other properties. To sum it all up, you’ll have a high-performing asset in your portfolio that increases your ROI as time passes by.
3. Diversifies Your Portfolio
While learning about investments in general, one of the basic elements you have to learn is the diversity of assets in your portfolio. Diversity means having all kinds of investment vehicles, such as stocks, bonds, gold, and real estate properties. Though you might think having real estate as your only property seems wise (as proven by the numbers preceding), considering other types of investment saves you immense losses in the long run.
How does this give you a better chance at mitigating your losses? Having real estate properties can save you from feeling the whole effect of a loss in other investments. This actively demonstrates each investment as a safety net should one or more create losses instead of profits.
Having a real estate property as an investment can diversify your portfolio, thus, casting your net wider for your ROI, profits, and for when you experience a loss. That’s why investing in real estate through rental properties, like the ones you can find at Scott and Lisa Homes real estate agency Denver is a good place to start. They’re not only situated in one of the fastest-growing metropolitan cities but also one of the places with the largest percentage of population rents.
4. A Great Retirement Strategy
Real estate increases in value the longer you work with it, which means over time, it does not depreciate but appreciates. On top of that, retirement strategies prefer the investor to earn more and work less, which is what rental property investment. Collecting rental fees is considered passive income, which makes it one of the biggest income-earning investments to be considered passive.
However, real estate is a long-term, high-performing asset for a reason. The investor needs to pursue this a couple of decades early to time it properly for their retirement funds. By this time, you would have paid off your loans plus interest and are already enjoying your profits wholly.
Things To Ask Yourself Before Pursuing This Investment
1. Are You A Capable Landlord?
As a property owner, the first decade is one of the most challenging in the journey. This part demands the investor to care for their property investment, whether it be using your toolbox efficiently, unclogging drains, and fixing up drywalls. You can hire professionals for it, but it’ll end up eating your money that should have gone to your savings and profit. Many property owners that end up being landlords learn a thing or two about carpentry and plumbing.
2. Are You Willing To Deal With Different Kinds Of People?
Having an investment property will ultimately end up as either a rental apartment or a rental event venue. Unless you can come up with creative ways to use your property and generate an income, there would be an array of things that would go wrong (link: https://www.dailyrepublic.com/projects/home-seller/all-things-real-estate-plenty-of-pros-cons-to-investing-your-money-in-real-estate/) when you become a landlord. It’s not just problems with your property, but with your less-than-agreeable tenants.
3. Are You Willing To Invest Big?
Just like with any investment, it’s never a good idea to buy cheaply. This sentiment becomes twice as important for real estate. Buying a property for a bargain price can only mean one thing: it’s a fixer-upper. The expenses you’ll spend to renovate it will be exorbitant, to say the least, and that doesn’t even include your contractor. It’s better to choose a property with minor flaws. It’ll save you a lot of effort at the very least!