Investing in rental property gives you :
Leverage / mortgageable asset
Equity/ Tenants that pay your mortgage
Investing in rental property, offers many strategies for creating both short term and long term wealth. Investors are focused on immediate cash flow to cover day to day expenses. But they must also focus on appreciation, equity and leverage to grow their investment business for the long term.
Rental property isn't all headaches and backed up toilets when the right strategies, automated systems and key people in place. Tenants pay down the mortgage, build equity for and your investment company reaps the tax benefits. Plus, your property will likely appreciate in value, adding more wealth-building potential to the bottom line.
1. Low Income. Look for vacant properties that are on the fringe of blighted areas and need rehab. The properties need a sound construction. These will be priced low & ready to go. Buy them, do a cosmetic rehab and rent the properties. When the cash flow and the capitalization rate is stabilized then refinance. Many properties qualify for tax incentive programs that keep money in your pocket. Tax abatements can help with the rehab costs, especially if you invest in neighborhoods with historical houses or inner city neighborhoods that have been economically effected.
2. Prettier properties in better neighborhoods.
Look for multifamily properties that have less than 70% occupancy and high overhead costs. The initial rehab and turn around time will be less because these properties are already in good condition. Plus they will bring the highest monthly rental price. As the value of your asset increases it will also help to transform the
3. Airbnb and VRBO have created opportunities for short term tenants. This strategy will once again be a lucrative option after the COVID crisis is under control and people start to vacation again.
4. Single family home are usually rented for the long term. It's difficult to pickup and move a family - on the average a family stays for between 3-4 years. However, these types of tenants need amenities like yards, garages, laundry rooms, extra bathrooms and schools and shopping nearby.
5. Gain top of market rent payments.
Do not defer maintenance. Invest in your asset, build it up. Create value and turn the property around with cosmetic and safety updates. Which have the ability to decrease insurance premiums. Plus, maintenance costs are seen as a expense
that can be written off on your company's taxes.
6. Increase occupancy to 95% (multifamily) and 100% (single family).
7. Once the rental property is fully functioning and producing cash flow and a profit it can be easily sold to an investor as a turn key business at maximum price.
8. Leverage. Use other peoples money and always mortgage the property.
Keep the property and refinance the mortgage and pull out all the equity so that you can invest in another piece of real estate. This can be done about every 4 to 5 years.
Plus the interest for the loan will be written off on your company's taxes.
Also, the loan will add an extra layer of asset protection to the property.
9. The Tax Benefits of investing in rental property may not put money directly into your pocket but it can help keep the IRS from taking it out. If your business Corporation is structured correctly, each year you'll have write offs of deductible expenses. These expenses are anything related to the operation of the rental property plus a depreciation allowance.
10. Avoid capital gains taxes with a 1031 tax-free exchange or defer taxes by investing through an IRA. Talk to your tax professional for more information.
We highly recommend the use of a Broker, Realtor or property management company. The cost is 10% give or take a little- but remember you get what you pay for so don't go low cost.You need someone who can buy, sell and manage multifamily properties, fill vacancies, increase NOI and help build your wealth with an income producing portfolio. They will be your professional counsel with
insight and guidance along with a complete understanding of the local real estate market. With knowledge of and compliance with local, state, and federal regulations including the ADA act.
When you turn your rental properties over to a professional the property will start to generate passive income or semi passive income and you will have more time to concentrate on other aspects of your business.
One last thing about adding a Realtor/Broker to your team to manage your investment properties. They will have clients who are investors, and if your business model also consists of wholesaling properties then your Realtor/Broker will have instant access to possible buyers for your deals. Yes, you will most likely pay a real estate commission but it is worth it for an effortless sale. Sometimes, its about being a deal maker, building relationships, earning repeat business and referred deals.
And this process works both ways- Don't be surprised to find that your Realtor/Broker offers you properties from other investors in their network.
And as tenants want to move on to buying a home the Realtor/Broker has an established relationship with them and can easily suggest one of your retail properties to them. Provided that your business model also consists of retail sales.
Use technology to generate more profit and lower operating costs.
Software shows you how your rental property will make money.
It will evaluate operating costs, rent amounts, capitalization rates and cash flow + so much more.