Chapter 1: Introduction to Rental
Property Investing
Today, generating high income from investment has become trickier due to
the rising financial uncertainties. The stock market continues to hover near
all-time highs, and is becoming significantly overvalue according to several
economic metrics. At the same time, uncertainty and increased volatility
have become a norm in investment due to macroeconomic and geopolitical
factors. Meanwhile, the interest rates are historically low, making stock or
bond investment to be most unattractive and tricky business for investors.
With the dilemma seemingly stacked among income investors who are
looking for the safest place to invest their savings, what should one do?
I believe that this is the time to consider less conventional alternatives
like investment properties. In a survey recently conducted by economic
scholars, up to 97% of investors indicated that they are intending to increase
their capital allocation to property investment in the coming months. When
investors consider that real estate is the only investment that has historically
generated higher rates of return compared to bonds and stocks, it is not
surprising at all.
If you are new to the real estate industry, the great way to get started is
to invest in rental properties. Not only can owning a rental property help
you to accumulate wealth, but it can also set you up for a financially stable
future. That said, there are several benefits of owning a rental property to
pass over. In this chapter, we are going to learn the basic concepts of rental
properties, why this type of investment can help you retire faster, and the
amount you need for this type of investment. As well, we will cover how
much money one needs to invest in real estate, how to invest with less cash,
and the potential risks/pitfalls of rental property investing.
What Is Rental Property Investment?
A rental property investment refers to the real estate investment in which a
property is purchased with the intention to earn a return on the investment
(ROI) through rental income. Such property may be held by a corporation, a
group of investors, or an individual investor. A rental property attracts
buyers who want to have a steady stream of income. An ideal investment is
owning a house or a home in an attractive neighborhood with basic
amenities such as good schools and a supermarket. It can be both an
investment and vacation or second home.
There are three types of rental properties for investment. These include:
Residential—Rental houses are a common way for many investors to
supplement their revenues. Purchasing a residential property and renting it
out to tenants enables an investor to collect his/her income every month.
These may include a townhome, a single-family unit, a condominium, an
apartment, or other types of residential structures.
Commercial—Rental property does not have to be residential. Some
investors may purchase commercial properties that are used for business
purposes and rent them out. The improvement and maintenance costs of
these properties may be higher, but the returns are usually bigger because of
the higher rents associated with the leases. Such buildings may include
retail store locations and commercially-owned apartments.
Mixed-use—This type of rental property is used simultaneously for
both residential and commercial purposes. For example, a building may
have a retail storefront on the ground floor like a restaurant, bar, or a
convenience store, while the upper floors have residential units.
Contrary to the common knowledge and real estate books and courses,
rental properties investment is not a strategy that is used to earn passive
income. In fact, it is one of the most time-consuming and active forms of
real estate investment, which one should engage in for high returns.
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