What is a Long-Term Rental and Tips for Investing in One

Long-term rentals are a great investment because they are so common; everyone uses them from families looking for a change of scenery to business travelers. If you’re considering buying real estate as an investment, finding a long-term tenant is a good approach for generating steady income. But what exactly is a long-term rental, what are the benefits, and how do you start your own? Continue reading to learn everything you need to know about long-term rentals and how to invest in one.

What is a Long-Term Rental?

A long-term rental property is a property that a tenant rents out for an extended length of time. Long-term lease terms usually have a duration of six months to a year with a fixed rent price. Typically, the home is unfurnished, and utilities are the tenant's responsibility. Long-term rentals mean less churn, greater consistency, and ideally less hassles.

Benefits of a Long-Term Rental

Monthly Income

The regular rental income that a traditional investment property produces is one of its key advantages. The ability for rent to be collected on a monthly basis can also turn into passive income so long as you’re willing to hire a property manager.

Depreciation/Tax Deductions

Owning long-term rentals can result in significant tax benefits. This includes being able to deduct specific costs like depreciation and mortgage interest. Benefits from property taxes are another significant advantage of the purchase and hold strategy. Consider working with a tax professional to help increase your returns.

Real Estate Appreciation

Despite the fact that the value of investment properties can fluctuate, it is reasonable to conclude that a decent rental property in a desirable neighborhood will always increase in value over time. This is what the real estate industry refers to as appreciation. This helps you as a beginner investor because you can eventually sell your long-term rental for a profit if the value rises.

Finding Profitable Long-Term Rentals

Choose the Right Location

Avoid being drawn to invest in cheap houses in undesirable areas. In certain areas, there is very little potential for real estate appreciation and maintenance will be more expensive. It is unlikely that your rental income would increase over time. Location is a key component of real estate investing success; typically, the best rental properties are in areas of high growth.

Have a Strategy

One of the most crucial phases in investing is creating a strong business plan for your long-term rental. Even the least experienced investors will benefit from having a well-defined strategy for their investments. Create a plan to achieve your goals as a real estate investor by deciding what you want to achieve. Make sure nothing is left up for interpretation, and plan a solid exit strategy as well.

Financing Your Long-Term Rental

Conventional

Banks and credit unions must adhere to rules established by Freddie Mac and Fannie Mae when issuing conventional loans. Most lenders offer low loan prices and mortgage interest rates, and many will take the eligible rental income from the property being financed into account when determining a borrower's debt-to-income ratio.

Private Lender

Private lenders are peers in the real estate industry that favor loan investments over equity. Instead of directly holding real estate, they offer money to investors looking to finance a rental property. Private lenders have the ability to provide capital quickly and provide flexible terms, but loans will have higher interest rates.

Hard Money Loans

A hard money loan is a loan given by a private organization rather than a bank. A hard money loan may be easier to qualify for than a conventional loan, which is a benefit of using one to finance a rental property. While factors like credit and income are still considered by lenders, the profitability of the property remains their main priority. In contrast to waiting weeks or months for a traditional mortgage closing, it is feasible to obtain a hard money loan in a matter of days.

RCN Capital

RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs.Connect with us todayto discuss your next real estate investment.