How To Invest in Long-Term Rental Properties

Real estate investment is both lucrative and gratifying. This is especially true when it comes to pouring your blood, sweat, and tears into a long-term rental property. These investments can lead to hefty monthly incomes, steady equity growth, and an increase in property value over time.

That said, there are a few things you should know about this type of investment before you dive in. Delve into some of the specific details in this guide about long-term rental properties.

Choose Profitable Properties

Before you can reap the rewards that come with long-term property investment, you must first select the properties that will best serve your purposes. This is perhaps the most crucial step in the process.

Not only do you need to choose a property that you’re excited about, but you’ll also want to ensure that the project you pick will retain much of its value over time. So there are a couple of critical factors you should consider when making your decision.

Find the Right Neighborhoods

When searching for the right investment property, it’s wise to determine how suitable the surrounding neighborhood is. Typically, the best rental properties are those located in working-class to middle-income areas. And to find these places, most investors start by assessing a neighborhood’s schools, shopping centers, transportation, and overall condition.

It’s worth noting that all of these factors will contribute to the success and value of your investment. So don’t be tempted by cheaper properties in other locations. They might seem appealing at first glance, but you won’t make nearly as much profit off them in the long run.

Locate Profitable Properties

Once you know the general area you’d like to invest in, you’ll want to determine what kind of investment property you’d like to purchase. Many newbie investors grapple with deciding between a single-family, multifamily, and townhouse or condo. This is because it can be challenging to see which might be most profitable long-term.

However, seasoned investors and experts agree that it’s best to go with a single-family unit at the beginning of your investment journey. Because these properties are smaller, they’re easier to manage. Plus, they cost a little less up front and won’t deplete your bank account.

Additionally, you’ll want to steer clear of luxury properties at first. They’re difficult to keep up with when resources are limited and can very easily create negative cash flow on your investment, which is quite literally the opposite of the result you’re hoping for.

Select an Effective Financing Option

Of course, once you have an ideal property in mind, it’ll be time to discuss financing. This is an essential step in the process because without the proper funding, you can say goodbye to your investment. And there are numerous financing options, such as private lending, fixed-rate mortgages, and cash payouts. However, all of them can easily fit into one of two major categories:

Mortgage Loans

Most real estate investors, especially those learning how to invest in long-term rental properties, will typically choose to use some sort of mortgage loan to finance their investments. These methods are attractive because they allow real estate investors to acquire properties, even when they don’t have the total cash amount.

Suppose you’re a small business owner interested in buying a rental property. You don’t have the cash-in-hand to pay for your investment, but you do have other financial assets because of your business. Well, in this case, you could use asset-based lending for your rental property.

This way, your assets can make up the difference, so you can still purchase your property. And many mortgage loans work in similar ways. For this reason, they are very attractive to real estate investors who need a bit of extra help getting their investments off the ground.

Paying Cash

However, some investors will choose to go another route and pay for their investments with cash. And the benefits of investing this way are apparent. First, you won’t have to worry about making monthly mortgage payments. So, any profits you make off rental incomes will be yours to keep. Second, if one of your properties is vacant, you won’t have to pay a pretty penny out-of-pocket to keep it in your possession.

Plus, paying with cash can make it easier to negotiate with a seller quickly. However, you’ll want to tread lightly with this option. Because paying with cash can burn a hole in your cash reserves, this method can quickly leave you high and dry. This is especially true when you consider the possibility of monthly costs increasing or financial emergencies that might pop up after you purchase a property.

Enjoy the Benefits of Long-Term Investment

No matter how you slice it, when you know how to invest in long-term rental properties correctly, there are various benefits for you to enjoy. Sure, these benefits include making a significant profit from your investment. But it might surprise you to learn that there are other, less evident upsides to investing in rental properties long-term.

Monthly Rental Income

Monthly rental income is one of the most apparent advantages of rental property investment. And because you’re in it for the long haul, this income will remain steady and dependable. Plus, a monthly rental income can help you generate revenue from other sources.

These sources can include things such as vending machines, laundry facilities, and even parking fees (if you offer these services). And for a real estate investor, this passive income means more money in your pocket each month. And inherently, this could allow you the funds you need to make other investments down the line.

Steady Equity Build

Another fantastic benefit of long-term rental property investment is the opportunity it gives you to build equity over time. With traditional rental properties, your tenant is technically helping you pay down your mortgage through their monthly rental fees.

This means that the equity in your investment property will continue to increase each month. You can also use your rental income to cover interest expenses. Additionally, for these reasons, it’s prudent to ensure you’re selecting reliable tenants who can make on-time payments monthly.

Real Estate Appreciation

Lastly, long-term rental properties also come with the benefit of real estate appreciation. The value of your properties may indeed change over time. But, if you select a property carefully, based on its condition and surrounding areas, then you can expect that change in value to be positive.

And for investors, this is one of the most desirable characteristics of any property they’re looking to invest in long-term. This is because when the value of a property increases, it means more significant profits when it comes time to sell.

How To Invest in Long-Term Rental Properties