Almost everyone – from seasoned property investors to would-be real estate investors – talks about the value of owning rental properties. After the purchase of their primary residence, several smart investors make ownership of multiple rental properties one of their top priorities.
Whether they are everyday folks wanting to build a nest egg for early retirement or people on the lookout for efficient ways to make their first million dollars, rental property ownership almost always features as a part of the investor’s long-term strategy, Orca Realty explains.
Why do so many successful investors and established millionaires own rental properties? Why is this type of asset more reliable than stocks, bonds, or other forms of paper assets? This post will help you understand why you should invest in rental properties.
8 benefits of investing in rental properties
1. Steady cash flow from rental income
The main reason several investors buy rental properties is to create passive income. A decent rental property in a good location will reliably generate substantial income. Unlike stock dividends, rental property income is consistent, and investors can predict how much they will earn monthly. Furthermore, property investors have some level of control over how much money they collect in rental income. That is because they can raise their rent or renovate their property to make it more valuable.
2. Less volatility
Unlike stocks, rental properties are more resistant to financial, economic, and political shocks. The value of stocks can crash over a short period because of events in the company or the larger economy. In contrast, real estate prices are more resilient because they move slowly. That means you can predict the future value and financial performance of an investment property more than you predict the behavior of stocks and similar assets.
3. Tangible versus paper assets
Real estate never loses its value completely because it is a tangible rather than a paper asset. An investment in company shares can evaporate overnight if the company is bankrupted or its products become obsolete due to technological advancements. That cannot happen to a rental property because it is a brick-and-mortar asset. A rental property may lose value on paper, but it is still useful as a living space, and its market value will eventually rebound.
4. Unrivalled leverage
An entire financial ecosystem exists solely for the purchase and sale of rental properties. That is why you can buy rental properties with a bank loan, but it is almost impossible to do this when investing in stocks. By simply putting down 25% of the value of a rental, the bank will give you the rest of the money to buy the property, and you will earn on that investment as if you owned 100%. This kind of leverage is only available when investing in property.
5. Direct control
Investing in rental properties offers you direct control of your assets. You aren’t required to leave the assets in the hands of asset managers, as is often the case when investing in mutual funds. Also, you do not have to rely on the expertise of a company’s managers for the performance of your investments. When you buy a rental property, you can be involved in the day-to-day decision-making for your asset, even when you have a property manager.
6. Property Appreciation
The price of real estate always goes up in the long term. That is because demand for rental properties is founded on two essential fundamentals. Firstly, people and businesses will always need shelter. So rental properties will always be in demand. Secondly, land is a limited resource, and demand for it will only become stronger as populations increase. These factors guarantee that the value of your rental property will always go up.
7. Forced appreciation
Another reason that the value of a rental property is more likely to appreciate than depreciate is because of what is known as forced appreciation. You can forcibly increase the market value of a rental property by renovating it. The options available to you when renovating a rental property are almost limitless. That gives you another layer of control over the financial performance of your asset.
8. Hedge against inflation
Rental properties are practically immune to inflation. That is because property values increase along with the rise in the cost of goods and services. Moreover, landlords have the option to raise their rent to make sure their income does not lag behind the rate of inflation. It ensures that the investor’s purchasing power is protected at all times.
Are you thinking of investing in rental properties? Do not dream of buying your first investment property until you have spoken with an expert. That’s because becoming a successful rental property investor involves a lot of education.
You must learn how to assess the viability of an investment location, know the qualities of a good rental property, and learn how to calculate the income potential of a proposed rental. Only after you have learned these skills should you start investing.