How To Make Money From Rental Properties
If you’re looking to invest, consider the benefits of real estate. You can use it to generate a steady income. Over time, it usually rises in value. You can use it either as part of an overall investment strategy or make it your primary investment strategy, constantly reinvesting your profits to buy more property.
When it comes to investment options, real estate is often considered the safest because you’re investing in, tangible assets, because the real estate market is relatively stable, and because of the benefits of long-term appreciation.
If you do decide to get into real estate, it’s advisable to buy property as a real estate LLC. The legal structure of a limited liability company will help you in a number of ways, such as asset protection from litigation and taxation benefits. All you have to do to get started is to file articles of organization with the government agency responsible for filings for your state. You can do this filing in person or online. Another consideration might be an S corporation – and if it is a better fit for your position – taxwise. See LLC versus S Corp.
Make Money from Rental Real Estate
While there are, of course, many ways to make money from real estate, one investment model that is fairly straightforward to understand and apply is rental real estate.
When you buy a real estate investment e.g. a hotel, office building, apartment complex, warehouse, or single-family home you will create a steady stream of income by charging people rent for using the property and its facilities.
Here are 3 issues to keep in mind when getting involved in rental real estate:
1. It’s simple, but not easy.
Although the rental real estate market is simple and can be highly profitable, it is not necessarily easy.
If you own a rental house, you may find yourself dealing with tenants who have a bad month and can’t pay the rent or have to deal with an emergency like an overflowing toilet. In some cases, things can get quite dangerous for instance, tenants may use your property as a secret base of operations to run a meth lab.
If you own an office building, simply working with more responsible, business-minded tenants won’t guarantee things will go smoothly. A promising business that leases from you may go bankrupt due to changes in market conditions.
If you own an industrial warehouse, a tenant may not have used the property according to environmental regulations and you may have to deal with government investigations.
If you own a storage facility, there may be issues with security and theft.
Fortunately, knowing about the possibility of these problems will help you take the appropriate measures to screen people carefully or circumvent possible issues from arising in the first place. If you don’t want to deal with any issues at all, then you can always hire a property management company to look after things.
2. Costs aren’t always predictable.
If you find a nice property in a great neighborhood, your down payment will tend to be higher than if you bought the less optimal property. So finding a great property isn’t always the best solution when it comes to profitability.
Another financial issue you may face is unexpected costs. For instance, if the basement begins to flood, you may have to dig up the entire garden to find the broken pipe.
For these reasons, you need to be careful when buying property. Make sure that all things considered, you get a positive return on your investment.
3. Start small if you think you’ll be overwhelmed.
If you think you’ll be overwhelmed with all the issues arising from renting out an apartment complex or a strip mall or a warehouse then start with a single-family home. It will help you understand how to manage tenants and maintain the property. You will also find it easier to deal with a single-tenant rather than with many different personalities. In fact, there is no need to buy a larger sized property to grow your real estate empire. You may find it easier to just reinvest your profits to buy more single-family homes.
In conclusion, go into the rental real estate market with your eyes wide open. Don’t assume that there won’t be problems with finances, with tenants, or with property maintenance. However, by managing risk with an LLC and anticipating the worst-case scenarios, you can take preventative steps to minimize them. And, of course, you don’t have to self-manage your property and can take a cut in profits by hiring a property management firm to take care of everything for you.