As an entrepreneur or investor, you always look for new ways to make money. Rental properties can be an excellent way to create income streams, but this business requires effort, perseverance, drive, and some know-how to make it a successful, lucrative endeavor.
So, how do you make money off a rental property? Let’s take a look.
There are two basic classes of rental property: residential and commercial. Residential rental properties are houses, apartments, duplexes, etc., while commercial rental properties include office buildings, warehouses, retail stores, and the like.
Everyone needs a place to live, so it is no surprise that residential rental properties are in high demand. Whether investing in your first investment home or adding to an existing portfolio of properties, this is a great way to make money. To get started in residential rentals, you’ll need to purchase a property – or properties – that fit your investment criteria. Then, once you’ve found the right property, it’s time to generate income.
Residential landlords and property managers typically generate the majority of revenue by renting, leasing, subletting, or otherwise allowing the use of their property by tenants. In multi-unit properties, there could be additional opportunities to make money from coin-operated laundry machines, vending machines, or other on-site amenities.
Commercial rental properties are buildings used for business purposes. These properties could include office buildings, warehouses, storefronts, and other parcels used for commercial purposes.
Like residential rental properties, commercial landlords generate most of their income by renting space, storefronts, or property to tenants. However, there may also be opportunities to generate revenue from on-site amenities like parking, storage units, or vending machines. The key to making money from commercial rental properties is finding businesses willing and able to pay your asking price to use the space.
Whether you invest in turnkey office space, warehouses, retail storefronts, or vacant land for development, commercial property is a viable approach to building a real estate empire.
Like all ventures, there is risk involved in rental properties. But, with the right strategy and investments, it can be a very profitable business. Ideally, your portfolio should consist of a mix of properties – some that are high risk and high reward and others that are lower risk and provide more steady returns. A combination of properties will help mitigate any potential losses and maximize your overall profits.
In many cases, searching for distressed properties that are available for a discount can be a great way to buy property at a lower price and make needed upgrades or improvements to create high-profit potential investments. However, these types of properties can be riskier and may require more time and effort to turn a profit.
If you are handy or have a network of reliable contractors, fixing and flipping properties is an excellent approach to earning an income in the rental property business. In this case, you would purchase a property, make any necessary repairs or upgrades, and then list it for rent or sale at a higher price.
This strategy can be very profitable if done correctly but does require significant upfront investment to purchase the property and cover the cost of repairs or renovations. Then, after making necessary upgrades and repairs, you can either rent or lease the property for passive long-term income or sell it for a profit.
The 1% rule is a guideline that suggests that a rental property should generate 1% of the purchase price in rent each month.
A simple example. Let’s say you purchase a property for $100,000. Then, under the 1% rule, you should expect to generate $1,000 monthly rent.
However, this is more of a general guideline and not a hard and fast rule. Many factors can affect the rent you can charge, such as the location, type of property, and amenities included.
The important thing is to research and ensure the rental fees are enough to cover your mortgage, taxes, insurance, and other ordinary expenses with owning a rental property while still returning a profit.
There is no one-size-fits-all strategy for making money in the rental property business.
The key is researching and creating a custom investment strategy that meets your goals and fits your budget. Owning a rental property, or a handful of them, can become quite profitable with the right approach.