Renting real estate can be a profitable venture for investors to consider. Rental properties provide a monthly cash flow, offer tax advantages including property depreciation and the property may increase in value depending on location and the local economy. Just as there are many ways to profit from rental real estate, there are many different investment strategies to gain exposure to the rental market. Investors should consider these different ways to enter the rental market to determine which best meet their individual needs.
Single Family Homes
Renting single family homes is the easiest way for new investors to buy real estate and enter the rental market. By choosing homes in good neighborhoods, investors should have little trouble renting their properties or selling them when needed. The primary downside of single family properties is selecting and dealing with tenants. Hiring a property management company to screen tenants, deal with the late night service calls and other problems can reduce the stress, but the costs will also reduce the profitability of the investment.
Apartment buildings have the potential to provide a large stream of income that will produce significant profits. However, multi-unit buildings also hold the possibility of requiring substantial investments for maintenance or repairs. Investors may have to invest large sums of money into the building to make the property desirable to prospective renters. Multi-unit buildings are also more dependent on a strong local economy to produce the number of tenants needed to fill the building. These large buildings are more difficult to sell due to high costs and a limited amount of potential buyers.
Commercial Real Estate
Commercial real estate can vary from storage facilities to shopping malls. As with residential properties, the cost of these properties will have a wide range. Renting commercial properties often has less risk from destructive tenants, but the number of prospective tenants is much smaller. This can lead to properties being on the market much longer, both when renting and selling. Combination residential and commercial properties, most often with a street level commercial unit and apartments above, can present an opportunity for a compromise real estate investment.
Real Estate Investment Trusts, REIT, provide a way for investors to gain exposure to the rental real estate market without the significant investment of time and money required to purchase and hold real estate. A REIT is a trust that may hold various types of real estate properties, including residential and commercial rental real estate. A REIT’s management may choose to specialize in certain types of real estate or real estate in certain areas. REITs buys and sells on the stock market like any other stock which makes getting into and out of the investment quick and easy.