Single-family rental properties are becoming attractive to more investors as the market for rentals has become increasingly competitive through the last few years. Are you thinking about adding one to your portfolio? Here’s the ins and outs of how to invest into single-family rental properties.
Is Rental Property Investing Right for You?
When property value is seemingly increasing, it may seem like a no brainer to invest into single-family rental properties. Like any other investment, however, you need to be prepared for potential road blocks along the way. This is especially true when investing in rental properties, where you will potentially experience more upkeep and demands than you anticipate.
When assessing if a single-family rental property is right for you, first ask yourself if you are financially capable of making this venture. Do you have an emergency fund to cover six months of your expenses? Are you carrying high-interest debt like credit cards or personal loans? Answers to questions like these can tell you whether now is the right time to buy an investment property without derailing your other financial goals.
The Benefits of Investing in Single-Family Rental Properties
Want to know why investors prefer single-family rental properties? Continue reading to learn about all the benefits of investing into long-term rentals.
Monthly Rental Income
One of the main reasons why so many investors prefer rental properties is for the consistent monthly income they produce. Providing long-term leases means tenants will be consistently paying on a monthly basis, a great form of predictable income. If you hire a property manager, this effectively becomes passive income for one’s portfolio.
Depreciation/ Tax Benefits
There can be great tax advantages to owning single-family rental properties. For example, you can write off certain expenses like depreciation and deduct mortgage interest. These types of property tax benefits are a major advantage to one’s buy and hold strategy; overall reducing risk and making room for more return.
Real Estate Appreciation
Even though the value of your investment is subject to change, it’s safe to say that a rental property located in a growing location will increase in price over time. This is known as appreciation and this can offer many benefits to an investor because not only does your investment gain value overtime, but you’ll be in a better position to refinance or even sell it off eventually.
Common Challenges to Avoid
Like any investment, purchasing a single-family rental property comes with its risks. Here’s the most common challenges to be aware of and how to avoid them:
Property Tax Hikes
When property taxes increase unexpectantly, it can become problematic if a tenant’s rental rate isn’t enough to cover expenses. As a result, you might end up breaking even or shelling out more capital. It’s important to conduct research based on the location of your property to know the local tax laws and see if it fits your strategy.
Long Vacancy Periods
With a single-family rental, you risk long vacancy times as finding a tenant requires an owner to do advertising, background checks, and other extensive administrative work. You can lower the risk of experiencing long vacancy times by buying a property in a high demand area or by owning a property with multiple units.
Picking the right tenant for your property will descale a lot of risk, but how can you ensure the tenant you’re choosing will live up to your expectations? A poor tenant can lead to missed rent, destroyed property or even legal conflict, costing you money in the end. A proper screening can help to avoid tenant risk. It’s recommended to look at one’s background, credit score, and even prior renting history.
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 today to discuss your next real estate investment.