When property values seem to be on the rise consistently, it can be very tempting to consider investing in rental property as a first resort. Everyone loves the financial freedom and financial stability brought about by passive income. Even as you literally sit and go about your day, you’re assured of a stream of income coming in through the rent payments you receive.
Like any other investment type, however, investing in real estate with tenants won’t pay off immediately. Before you can enjoy the passive income, you have to work hard to make your property attractive to potential tenants. Then, you also have to make that proper ascertainment as to which types of rental real estate are best investing in.
If you’re interested in bulking up your asset portfolio by investing in real estate with tenants, you’ve come to the right place for some ideas. Here you’ll come across a list of the different ways to invest in real estate with tenants – or, in rental property, for short, to earn passive income from real estate.
- Invest In Real Estate Investment Trust (REIT)
This first way on the list is a mode of investing in real estate without necessarily buying physical property via real estate investment trust or REIT. This is great especially for beginners, or those of you who still don’t have enough substantial capital to cover the capital expense of buying physical real property. Moreover, REITs are an investment type with tenants as it’s usually for commercial properties like office spaces, apartments, hotels, and retail spaces.
When you invest in REITs, you can earn income as an investor through the distribution of net income dividends. It’s one of the best ways to make money without a job that doesn’t eat up much of your time. On top of the income you’ll earn, there are many convincing reasons why REITs are a good real estate investment choice, beginning with:
- It diversifies your asset portfolio. As an investor, REITs give you exposure to the real estate market, as you would when you invest in stocks and bonds.
- It comes with a high level of transparency and flexibility, as the companies that offer REITs are also covered by strict regulations.
- It’s affordable, as it gives investors the opportunity to invest in large assets, at bite-sized chunk prices.
- Invest In Single-Family Home Rentals
Single-family home units continue to be one of the safest and most effective ways to attract new tenants. Most individuals will always have that desire in them to have their own home. Single-family home rentals are often the first choice for young couples and even those who have just started being gainfully employed in a job.
From your perspective as a landlord, there are many advantages to investing in single-family home rentals, like:
- They’re easier to manage, compared to multi-family complexes or apartments. For beginners, those bigger types of investments can be more costly and can also be a lot of work. Investing in a single-family home unit can give you that introduction to rental real estate investment, so you can give yourself that chance to get familiar with and learn the tricks of the trade of rental real estate investing.
- They may give you a less frequent tenant turnover. Of course, this slated advantage would also depend on factors like the condition of your property and the location. When those are in the affirmative, you can ensure a less frequent tenant turnover. This means that a single tenant will often stay longer in your unit. This fact brings in financial stability while maximizing your real estate withholdings when you’re guaranteed rental payments for a longer period.
- Single-family rentals are attractive to potential tenants because of the yard space. It’s said that having a yard is one of the major differences between a single-family home unit compared to multi-family complexes that make the former a more attractive investment option. Couples in search of their first home rental prefer single-family home rentals with yard space. The high marketability rate means you’ll have potential tenants inquiring and exhibiting interest in your property more frequently.
- Invest In Vacation Rental Property
A third option you may look into is investing in a vacation rental property. This is a second home, usually by the beach, mountain, lake, or on a plot of farmland. This vacation rental property can serve as your second home, for personal use. And, when you aren’t using it, you’ll open it up for rent as well to holiday-goers.
As exciting as the idea of owning a vacation home may be, you also have to be ready for some of the downsides of this type of property. Generally, you may not have tenants 100% of the year, with peak seasons limited to the holiday season in the country or state where your vacation rental property is located.
When investing in vacation rental properties, you then have to get the computation of your rental rates right. This begins with having higher per night or per week rates to keep up with the cost of maintaining your vacation rental property.
Additionally, vacation rental properties also come with a high turnover rate. This can also mean a higher expense for property management pertaining to maintenance, cleaning, and even the repair of any broken fixtures.
For those reasons, investing in a vacation rental property can be one of the more challenging modes of investing in real estate with tenants. If you’re up for the challenge anyway and you know you’ll also be able to have good use out of that vacation property, then go ahead with this manner of rental property investing.
- Invest In Shared Ownership Properties
Investing in shared ownership properties is another way to invest in rental real estate. This is also otherwise known as ‘joint tenancy.’ As its name implies, those types of investments involve more than one investor purchasing real estate property altogether.
If you’re short on cash, this is a good opportunity to still invest in rental real property. You have someone else to share the investment capital with and share the responsibility of maintaining it. This also means you’ll be sharing in the profits.
When investing in a shared ownership rental property, nonetheless, you have to be very selective about who your partners are. Trust is very important.
Never enter into this kind of agreement with a friend or family member you don’t even trust. It’s only when you’re absolutely sure you can trust your potential partner that it makes sense for you to choose this kind of rental real estate investment choice. Plus, you can always safeguard your investment, shares, and interests in that joint property by having a lawyer draft, sign, and notarize your agreement.
Apart from the financial advantages of investing in a rental joint tenancy arrangement, there are many other pros of doing so, beginning with the following:
- It may enable you to avoid the probate court, upon the death of either one of the investors, yourself included. The reason behind this is that most joint tenancy agreements will also come with a deed of survivorship agreement attached. This document already lays down the specific instructions as to how the asset is to be distributed should the owner die.
- It may offer higher protection, in terms of stability. Because you have a co-tenant or co-investor to share the responsibility with, each one has that equal incentive to do their share in maintaining the property.
- Rent Out A Room
Fifth on this list is an opportunity to dip the very edge of your toe into the real estate market. Say you’ve inherited a property with multiple rooms, and it’s now in your sole name. Or, your kids have all gone off to college or married, each with their own homes now. You have so many extra rooms in your home that aren’t being used anymore.
Have those rooms rented out! You may be surprised to hear that there are so many potential tenants looking for a place to live, but can’t afford an entire apartment yet. Or, those single holiday-goers or backpackers who are looking for places cheaper than a hotel room or a vacation home. Renting out those rooms to tenants can give you extra income, monthly through the rental payments.
If you have the room for it anyway, renting out your extra rooms can be your entrance to real estate investing. In addition, you didn’t have to shell out much for this investment. Perhaps a few tweaks here and there to make the rooms more presentable or marketable will do.
Conclusion
Real estate investments, particularly rental properties, are a good way to add some diversification to your assets.
If you’ve ever been a tenant before, you may have even developed that desire to one day be the landlord, yourself. Given the attractive possible passive income that real estate investment brings, this fact may not be that surprising at all. You can jumpstart that dream by finally turning it into a reality in the different ways mentioned above. Each has its pros and cons, so it’s for you to check according to what you feel suits your preferences best.