June 16, 2024

Fryer And Brown

Creating Your Dream Home

Rental Property Investment

The chief goals of any property investment are appreciation, cash flow and tax savings. Rental property investment is the only property investment that provides you all these three benefits at the same time.

The main rental property categories consist of single family rental properties, multi-unit residential rental properties, commercial rental properties and holiday homes. The first category includes long term single family renting, the second category includes apartments, buildings for multiple families while the last category includes shopping centers, office buildings etc. for a long term renting purpose. Here are other points to consider with real property investments:

1) Methods like repossessions, ugly homes, and probate homes are useful for buying property. Lease purchases can be extremely useful which help you to leverage investment money and reach a positive cash flow from renting. Buying fixer upper homes or repossessions can help to reduce investment money and improve cash flow and appreciation.

2) One cannot expect a considerable cash flow from property with one tenant. In this case, the main goal is to cover the mortgage and current expenses.

3) Research on a potential rental home should include significant financial planning for years ahead, like expenses of property management, repairing, vacancy, emergency etc.

4) The apartment and the 2-4 unit homes are the main classes of the multi-unit residential property investments.

5) With apartment investments the main profit comes from the rental cash flow. A lease to purchase option and leveraging investment money is quite useful in this case. The most significant factors in this case are the financial evaluation and property management. With a steady cash flow from a number of tenants, it is possible to hire a manager for the property management. It helps to increase the cash flow and the value of the apartment building. Underestimation may damage the investment and lead to loss.

6) Commercial properties investments include office buildings, retail shopping centres, industrial properties and the like. The market value of these properties is decided on the cash flow (net rental income). The main objective of rental in these cases is to generate enough cash to exceed the cost of mortgage, insurance, maintenance, future improvements. This is not an easy task to handle. It requires analysis of many things. But if done properly it could prove to be lucrative. Changes in the economic conditions usually have a pronounced impact on these types of real estate investments than on residential property investments. And as office buildings and industrial properties are more susceptible to these changes, it is wise to keep extra capital to support those investments if something does not go as expected. In this case, a money-leveraging approach (lease to purchase option) is very useful.

7) A holiday home can be used in two ways. It can be a property home or an investment property. This category includes resort properties, mountain homes, or beach homes. With holiday rentals, the main profit comes from the appreciation. Cash flow generated from renting is usually used for current expenses like property management, mortgage and insurance. These are short-term rentals and require intensive maintenance.