Last month we talked about tactics on how to invest in real estate. We particularly analyzed the method of house flipping and evaluated the pros and cons. In this blog post, however, we will look at another real estate investment strategy. It is the one of investing in rental properties.

 

How does investing in rental properties work?

In contrast to house flipping, investing in rental properties is all about keeping the property in your ownership for as long as possible to generate passive income. Investing in rental properties is seen as a very traditional and established way of investing that is very common in the real estate world. The investor buys a property and then proceeds to rent it to tenants in order to generate a stable monthly cash flow. Of course, with this method, the investor does not collect their initial investment amount right away, but rather accumulates it over the years and proceeds to later create a return on investment.

There are two types of rental properties

1. Short-term rental properties

These are properties the investor rents for a time frame of less than a year and usually does so through platforms such as Airbnb, Booking, etc.

1. Long-term rental properties

In this case, the investor rents the property for longer periods of time (1 year and over) and does so through other platforms, excluding the ones mentioned above.

 

What are the advantages?

1. Monthly cash flow (passive income)

When owning a rental property, the investor can generate monthly cash flow by renting it to tenants. That’s basically also the primary goal of investing in rental properties. Investors want to secure and increase their monthly income. Passive income is lucrative as it is being generated without the need for active labour and fixed-time sacrifices.

2. Properties appreciate

Investing in rental properties can also be very beneficial because the value of properties usually appreciates after some years. In this type of investment strategy, the investor is the property owner for a long time. Meaning that if the investor decides to sell the property in the end, they will receive more money than their initial investment amount. Also, throughout the years they would have generated a steady monthly cash flow, scaling up their overall return on investment.

3. Tangible assets

A rental property is considered a tangible asset, which is something worth owning. It protects the investor from inflation and can also appreciate over time. In contrast to house flipping, rental properties are kept in the investors’ ownership for as long as possible. Sometimes even for a lifetime.

 

What are the disadvantages?

1. Management and maintenance costs

Investing in rental properties can cause property management expenses as well as maintenance costs. These expenses can decrease rental income. It is the investor’s responsibility to take care of any problems that show up during the tenant’s stay. Furthermore, it is advised to renovate the apartment before proceeding to rent it because this way it is easier to find prospective tenants and it is also possible to increase the monthly rent amount.

2. Risk of not finding tenants

Finding tenants is a crucial part of investing in rental properties. Without tenants, the investor doesn’t fulfil the purpose of this investment strategy. Finding tenants may be easier nowadays because of all the online platforms that are available. However, it is still difficult, especially if the property has not been renovated or is not in a good state. These expenses are on the landlord. Furthermore, if a tenant moves out, the landlord still must pay the monthly expenses.

3. Requires knowledge about tenant and landlord laws

Investing in rental property requires knowledge about tenant and landlord laws, leasing, mortgages, and property management.

 

Is it worth it after all?

In conclusion, investing in rental properties can be characterized as a long-term investment strategy. In contrast to house flipping, the investor owns the property for a much longer time (or even lifelong) and holds a lot more control over it. It is considered a very lucrative strategy because it generates a steady monthly cash flow.

Progreece, specializes in property management and supporting our investors with their purchase of rental properties. Our specialized team is responsible for finding tenants and handling all the issues related to this. Our investors can have peace of mind that we will assist them along the way and take care of any given problem.