How to Build Passive Income with Long-Term Rental Investments

How to Build Passive Income with Long-Term Rental Investments

Real estate investing remains one of the smartest financial moves you can make, since it can provide investors with benefits like rental income and appreciation as well as tax advantages you don’t find in other assets. By investing in rental properties, owners can also benefit from the potential for passive income. There is some setup required to allow you to manage operations remotely, but there is certainly an appeal to this strategy as it can become a path to true financial freedom. Continue reading to learn how you can build passive income with long-term rental investments.

stack of coins and wooden houses on table

An Overview of Long-Term Rental Real Estate

There are many benefits to investing in long-term rental properties that other real estate asset classes simply can’t provide. We mentioned how these properties provide monthly income and appreciate over time, but unlike other investments a long-term rental’s income is very consistent, and they often require far less hands-on work to be profitable. The demand for rental real estate is also very consistent since people will always need places to live. If you plan to invest in a rental property, it will be beneficial for you to have experience with real estate, and if not, you will need to do your due diligence and get up to speed on rental management. Understanding the rental process from both ends will help you make better decisions and simplify the process of managing your investment.

Choosing the Right Property

The first step to a successful real estate investment is selecting the right property to acquire, and this is achieved through careful market research. Certain properties will perform better than others especially if your goal is to create passive income. Taking a look at certain statistics can give you an idea of the health of a real estate market. Namely, you will want to get accurate data on population growth, job growth, and the direction home prices/rents are trending. An area experiencing significant infrastructure development can also be a sign of a good place to invest. Finally, you will want to compare the prospect of a multifamily home versus a single-family. Although they require a steeper initial investment, they also provide better cap rates and monthly cash flows, which makes them easier to convert into passive income generating assets.

Financing Your Investment

Another important step is obtaining the right form of financing for your investment. Securing a loan from a traditional lender like a bank or credit union is always an option, and these loans offer attractive interest rates, but they also have stricter criteria and a lengthy application process. For quicker approvals, you should seek out financing from private lenders. Along with having less stringent guidelines, private loans can provide funding for renovation projects, which is great if you plan to make value additions to an investment. Be sure to compare all the financing options available to you so you can choose the one that best fits your financial goals.

Maximizing Rental Income

There are a few tips and tricks you can make use of to help maximize your monthly revenue with a rental property. Renovations are a great way to increase a property’s value and monthly rent, and the best time to perform these upgrades is whenever a unit becomes vacant. You should also regularly conduct a rental market analysis by taking a look at similar properties in your area to ensure that you’re charging a competitive rate. Aside from this, you should try and create an in-depth tenant screening process to help you avoid the issues that come with bad tenants. Then, you should ensure you have a good system in place for regularly communicating with tenants, so that you can address their concerns in a timely manner and ensure satisfaction. Keeping up with maintenance shows your tenants that you care about their wellbeing, and it also prevents smaller issues from ballooning into bigger ones.

Creating A Passive Income Generating Asset

The unique benefit that long-term rental investments provide is they can easily become passive income generating assets for their owners. Setting the process up requires that you have a rental in place that is already cash flowing, which gives you the extra funds needed to hire a property manager. The manager will be the one handling day-to-day operations such as repairs and tenants requests, and they can also be tasked with filling vacancies to help ensure you remain profitable. Before moving forward, you will need to compare the cost of such a service to your monthly revenue to determine if it’s financially viable. Property management generally makes more sense for investment properties with multiple units, or with portfolios of single-family rentals all located within the same market.

Tax Benefits of Long-Term Rental Investing

One of the lesser-known advantages to investing in rental properties is all the potential tax benefits that come with them. Many of the expenses associated with a rental property can be deducted, including maintenance costs, property taxes, insurance, and mortgage interest. You can also benefit heavily from depreciation by conducting a cost-segregation study. With cost-segregation, all of the assets on a property are depreciated over their usable lifespan, including the property itself. When all items are included, you can see how it may lead to massive tax savings for investors. Be sure to work with an accountant or other tax professional for more personalized advice on how to maximize your tax savings.

Building Long-Term Wealth

Although a rental property can become a truly passive investment, you will still want to check in regularly to ensure things are running smoothly. That’s because another major benefit of investing in long-term rentals is their ability to build wealth over time. Through appreciation, investors can enjoy the rewards of equity building and eventually pull the cash out through a refinance loan. These funds can be put towards another investment at a tax deferred rate, or just used for personal expenses, and the best part is that they will continue to grow over time even as you gain passive income from the investment.

RCN Capital

The easiest way to save on rental property financing is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance an investment property?