If the idea of investing in real estate excites you, you’re not alone.
Investing in real estate has long been one of the most profitable ways to grow wealth. According to Census data, over 70% of single-family rental properties are currently owned by individual investors rather than corporations.
Americans typically prefer real estate as a long-term investment option due to its high return on investment —especially to investors willing to stick with property over time. It’s also a popular way to hedge against inflation since both rental income and property values tend to rise in tandem with overall prices.
With the continuous rise in interest rates, many potential homebuyers are being priced out of the housing market. However, this has opened up opportunities for a new wave of “mom and pop” investors who are looking to capitalize on the booming rental market. Homebuyers are also interested in purchasing properties to rent, especially those struggling with mortgage payments.
But how do you know if you’re well-suited to take advantage of these real estate investment opportunities? Here are three signs that owning a rental property could be right for you.
YOU’RE A HOMEBUYER WHO WANTS HELP COVERING THE MORTGAGE
House hacking is a real estate investment strategy that can be more accessible than traditional real estate investing. This is because you don’t need a high credit score or a large down payment to qualify for a mortgage. Some government-backed mortgage programs will even allow you to buy a primary residence with little to no money down. On the other hand, if you plan to buy a home that you won’t live in, you might need to put down as much as 15% to 25% to qualify for a loan.
One of the benefits of house hacking is that the rent money you collect each month from your tenant(s) can help cover your mortgage and other expenses associated with homeownership. You may also save on utility bills by splitting them with your tenant(s) or adding a portion of the costs to their monthly rent.
Furthermore, house hacking offers certain tax benefits and deductions that are available only to landlords. We can assist you in finding a property that is ideal for house hacking, such as a house with a walkout basement, a multifamily unit, or a home with enough outdoor space to build an accessory dwelling unit or garage apartment.
YOU’RE AN INVESTOR LOOKING FOR STEADY AND RELIABLE INCOME
If you’re not crazy about the idea of a live-in tenant but still desire an additional stream of income, a dedicated long-term rental property could be a better option for you.
Consider buying a rental property to earn extra income and build wealth over time. Real estate owners have historically prospered, and owning a rental property provides monthly income and adds stability to your investment portfolio. According to data from the Federal Reserve, real estate owners have historically prospered. In early 2020, for example, the median home was worth almost triple what it was 30 years prior. Then, during the pandemic-era real estate boom, average home prices grew at an especially frenzied clip, climbing by nearly 50%, on average, in just two and a half years.
Invest in a property that generates positive cash flow, meaning the rent you receive exceeds your expenses. While current higher mortgage rates make it more difficult to turn a profit, almost 60% of real estate investors use loans to finance their purchases, and small investors are entering the market to meet the growing demand for rental housing. Contact us to learn more about exploring opportunities for a financially beneficial rental property that is attractive to renters.
YOU’RE AN EXPERIENCED INVESTOR LOOKING TO MAXIMIZE YOUR POTENTIAL RETURNS
Investment properties can be a great source of income. One way to draw income from them is by converting them into short-term vacation rentals. However, this strategy comes with risks as some municipalities have tightened rental restrictions while there is an oversaturation of the market in others. If you’re an experienced investor who can handle uncertainty, short-term rentals can be a good option. Renting a property short-term on platforms like Airbnb can earn you significantly more than if you rented the property to a long-term tenant.
To maximize earnings, you need marketing skills, hospitality skills, and business acumen. If not, hire a professional property manager. The vacation rental market has boomed during the pandemic, but inexperienced investors have found themselves biting off more than they can chew. As a result, there’s an opportunity to buy some of these properties at a lower cost. We can help you find investment opportunities in our local market or refer you to an agent in another area.
Before you take the plunge, make sure you can answer “YES”
to these three questions:
- Are you ready to be a landlord?
Owning a rental property can take a lot of time and energy. You’re not just buying passive income, you’re also building sweat equity since the time you spend maintaining, marketing, and managing your rental can add up quickly. So be prepared to do some soul-searching to ensure you’ll not only flourish as a landlord, but actually enjoy it.
If you want to invest in real estate but aren’t prepared to put in the day-to-day effort required, we can refer you to a property management service for help.
- Can you afford to invest in real estate?
The last thing you want is to get over-extended with your new real estate venture. Besides the cost of purchasing the property, you’ll need to consider additional expenses, like property taxes, insurance, administrative costs, and maintenance and repairs. You will also need a cash reserve for unexpected issues or potential vacancies.
We can help you run the numbers to determine whether you can charge enough rent to offset your expenditures.
- Have you found the right income property?
Even if you’ve got your finances in order and are emotionally ready to invest, your success as a landlord will also depend on the property you buy. The criteria for a good rental home and a good family home are often different, so it’s important to lean on professionals for advice.
We can help you find an ideal rental property, taking into account your budget, risk appetite, and investment goals. If you decide to invest in a different area, we’ll connect you with an agent who’s more plugged into that community. Reach out today to schedule a free consultation.
Investing in real estate can be a great way to build your wealth long-term and earn some extra income. But to make the most of your investment, it pays to be strategic.
Call us for a consultation so we can discuss your goals and budget. We’ll help you discover neighborhoods with the best income potential, point out the homes most suited to renting, and help you brainstorm the best investment strategy for you.
For all your real estate needs, from buying your dream home to selling your property at the right price, don’t hesitate to reach out to me. As a top real estate broker in Chicago, I’m here to guide you through the ever-changing real estate landscape and help you achieve your goals.