Why Real Estate Investors Love Long-Term Rentals – And You Should Too

Real estate is a tried and true method for wealth building, and long-term rentals are the foundation of many investors’ real estate portfolios. Rental properties have good reason to be popular among investors because along with providing steady income, they have many other benefits that help build wealth in the long-term. They have the potential for appreciation over time, offer significant tax benefits, and can even be managed passively. They also open up the path to additional property acquisitions through equity building and refinancing. Continue reading as we highlight the benefits of long-term rental properties and explain why they are a compelling choice for real estate investors both new and experienced.

The Basics of Long-Term Rentals

Rental properties are one of the most stable methods of generating returns through real estate. By getting tenants to sign 6 or 12-month rent contracts, you can be confident that you’ll be receiving income from your investment throughout this period. There are also different kinds of rental investments, from smaller condos and townhouses to large multifamily homes which provide multiple income streams. It’s generally recommended to get started with a smaller rental property before expanding into multifamily investment, but there really is something for every level of an investor’s experience, and great potential to scale a portfolio over time.

Why Investors Love Long-Term Rentals

There are a variety of reasons investors choose long-term rental properties for their portfolios:

• Consistent monthly cash flow: Having a reliable source of monthly income helps investors plan their finances accordingly, and the rental payments they collect help pay off their mortgage while also providing them with a consistent return.
• Lower tenant turnover: When compared to short-term rental investments, like Airbnbs, there is less turnover to deal with in long-term rental management. This allows investors to focus their time and energy on other tasks like growing their portfolio instead of spending time managing bookings.
• Appreciation over time: Rental properties have great potential for appreciation because they are always in demand, and people will always need places to live. This appreciation can grow significantly over time, providing investors with a solid return on top of their monthly rental income.
• Tax benefits: There are many tax benefits that come with operating rental properties. Most of the expenses associated with the investment can be deducted from your yearly returns, and you can take your savings further with depreciation by conducting a cost-segregation study.
• Equity potential: The great thing about rental property investments is that the equity you build over time is paid for by your tenants. Investors can then utilize the equity they’ve built with a refinance loan to obtain capital to grow their real estate portfolios.
• Passive income: Rental properties are one of the only investments that can provide passive income through hiring a property manager to handle day-to-day operations. You’ll have to compare the cost to your monthly income to determine if it’s a viable strategy, but this is perfect for investors who prefer a hands-off approach.

How Private Lending Enhances Rental Property Investments

Experienced investors make use of private loans from organizations that operate in the real estate space to help grow their rental portfolios. These loans provide additional flexibility and speed than conventional mortgages, which is important for securing time-sensitive opportunities especially in competitive markets. There are less limits on the number of properties you can acquire using these loans, which means investors can build a steady income stream faster. They also have more customizable loan terms, so you can work with your lender to build a financing program that fits your investment’s specific needs.

Tips for New Investors Considering Long-Term Rentals

There are a few ways to help ensure you find success with long-term rental investing, especially if you are new to real estate. First, due diligence is key, so be sure to research locations so you can find areas with strong rental demand and growth potential for your property. Next, be sure to get accurate estimates for your revenue and expenses, and ensure that you have a healthy margin between them. In today’s competitive market, you should look to get pre-approved for financing, and building a relationship with a lender who understands real estate investing can be a huge benefit. Finally, be careful that don’t overwhelm yourself; it can be good to get experience managing one or two rental properties before moving on to larger, multifamily investments.

Challenges to Consider with Long-Term Rentals

Managing rental properties is not always straightforward though, and there’s a fair share of challenges that come with investing in long-term rental properties. Aside from the initial acquisition, there are additional costs that come from maintaining the property, as well as other expenses like property taxes and insurance to consider. When it comes to day-to-day management, it’s important that you address tenant requests and maintenance issues before they blow up into more complicated problems. Tenant management is also a valid concern, which entails keeping an open line of communication with them, and also filling vacancies in the case there is one.

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?