There’s plenty of money in real estate. You’ve seen the towering buildings and the flashy real estate moguls. You know that, over time, the real estate market tends to increase in value. You know that real estate moguls buy big properties and cut deals to improve them with fancy buildings, and you know that those same moguls later sell off their properties for a tidy profit. However, how do regular investors fit into all of this? Can you profit from the real estate market? You can, and the key is something called an income property.
Making Money in Real Estate
You don’t need a ton of cash and buy up skyscrapers to make some money in real estate. As you no doubt already know, many folks choose to buy their home (rather than renting) because of the value of real estate. Unlike rent, we make mortgage payments in exchange for something valuable (the property), and homeowners can sell their property and — with a little luck — walk away with a profit that they can use to buy their next home. Regular folks can also invest in real estate through investment vehicles. For instance, you can buy stock in a real estate company or buy into a fund (such as a mutual fund or exchange-traded fund) that is focused on the real estate market.
However, these aren’t your only options. You can also become a bit more like the real estate moguls we talked about earlier — even though you might not have a spare few million dollars lying around. You can choose to buy an income property.
What is an Income Property?
An income property, as the name suggests, is a real estate property that generates income for its owner. Often, this is done by having tenants occupy the property and pay rent. An income property may include an apartment building or a home, and it may or may not involve anything owner-occupied. While not affordable for everyone, owning an income property isn’t just something for the real estate bigwigs! It’s something that a lot of people can do.
For instance, imagine that you’re thinking of buying a new home. The most obvious move is to sell your current home and then buy another. However, what if you kept both? With the real estate market as valuable as it is, it might pay to buy a new home to live in and to rent the old one out to generate income. If you can afford it, this would allow you to hold onto both assets.
Or, maybe you have a great deal of cash saved and invested, and you wish to put some of that cash into a real estate investment. Here, again, you might acquire an income property. You could reap the benefits of earning rent while also holding onto an asset that, like other investments, could increase in value over time.
Owning and managing an income property is something that is within reach of many more Americans than might realize it. However, you should know a few things about making your investment work for you.
Keys to Managing an Income Property
To make a profit off an income property, you must keep costs down and generate income via rent.
Keeping costs down means managing risk and not letting potential problems grow. An aggressive maintenance schedule is a must, as deferred maintenance is costly maintenance. You’ll want to protect yourself with landlord insurance, and you’ll want to work with an attorney to set up your investment in a way that insulates your personal finances from any potential problems.
To generate income, you’ll need a tenant. Advertise your property online and in other venues, and post a free rental application to make it easy for folks to seek your space. There is free landlord software that can help you do all of this!
You have plenty of responsibilities that come with owning an income property, but many opportunities exist, too. For savvy investors, real estate is an accessible opportunity.