How do people make money from investing in rental properties?
To listen to the advice of slick internet salespeople posing as experts, you would think that rental property investing is simply a legal way of printing money. But the experiences of thousands of people who ventured into real estate investing without accurate information tell a different story.
The fact is that buying a rental property is one of the most secure ways to invest and grow your money in the twenty-first century. Another reality is that you will lose money if you don’t do your due diligence to know how you will make money from those rental properties, you will lose your money.
Real estate investing is a diverse field; many factors influence investors’ ability to make money and how much returns they make. The more insights a person has about the inner workings of their investment, the more they can guard against losses and make money.
Most of this knowledge must be gained before you start investing. That information will play a significant role in helping you decide the kind of rental property investor you want to be. It will also inform your core strategy for making money from your rental properties.
4 ways investors can make money from rental properties
There are four ways to make money from a rental property. How much money you make via these methods depends on the kind of property you invest in. But whatever the case, combining the four strategies will let you make more money from your investments.
1. Money from rental income
Rental income is the first way to make money from a rental. This is also the option over which you have the most control. To maximize this option, you want to increase the amount collected as rent while decreasing costs.
To increase rental income, you should:
- Improve the amenities in your rental, and
- Find ways to get the tenants to stay for the long term.
To reduce the maintenance cost of the property, you need to have:
- A program of preventive maintenance, and
- A qualified handyperson to oversee the physical structures of the building
Lastly, location is the chief factor in how much rental income you can earn. Please ensure your location has enough demand for the rental property you want to invest in. Higher demand usually equals higher rents.
2. Money from increased market value
Almost every property will increase in value over time. If you hold the asset for long enough, you will eventually be able to sell it for a higher price than you bought it. You do not have to do anything to realize this increase in value; the market makes it happen.
Once again, the main factor in how much your property increases in value is its location. If there is a high demand for that particular type of property within the area, this demand will push the rental rate and market value upwards.
That is why you should investigate a location before you buy properties there. Note that, unlike income from rent, you can only profit from value appreciation when you sell your property.
3. Money through forced appreciation
Forced appreciation is an effective strategy for getting more money out of a rental. That is when you make the property more valuable by renovating all or parts of it. The rental’s enhanced features not only boost its market value, it also raises the rental rate.
Not all upgrades can boost the value of a rental property. Upgrades that make the rental more beneficial to your tenants will often let you charge a higher rent. Upgrades that lower operational costs will make the rental more attractive to buyers.
Before you renovate a rental property, know the kind of returns you are targeting.
4. Money from tax deductions
You can reduce operational costs and boost profit through tax deductions. That is one of the incentives the government gives to rental property investors. The money you save through tax deductions can sum up to a lot at the end of the year.
Most of a rental’s everyday expenses are eligible for tax deductions. Specific items you can get deductions on include; mortgage payments, property taxes, insurance, depreciation, maintenance & repairs, utilities, professional fees, and travel expenses.
To avoid leaving money on the table and getting into trouble with the law, ensure you hire a qualified tax accountant to help you with these deductions.
To conclude, there are several other ways to make money from rental property; we have only focused on the basic ones that apply to all rental properties.
For instance, you can earn money from parking tickets if you own a commercial property or a multifamily apartment complex.
The important thing about making money from a rental property is to identify the avenues for making profits before you invest in any rental property.
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