Tips on How to Build Long-Term Wealth with Rental PropertiesMike Johnston
The reason why rental properties are such a lucrative business opportunity is the fact that this investment A) returns value over time and B) doesn’t take too much time and energy. Choosing a property, engaging in the initial maintenance and remodeling stage, as well as screening tenants, all takes hours and days instead of months and years. This means that you get the privilege of investing time and resources in the short run and creating a passive stream of revenue in the long run. Still, this is not as easy as it sounds, and there are several tips on how to build long-term wealth with rental properties.
Going for an expensive property is not necessarily a good idea
Owning a valuable property is a great idea. However, if you’re looking to make money by renting out a property, you need to look at the return, rather than the value. You see, when you go for an expensive piece of property, you’re narrowing down the potential tenant-base, which, in turn, makes it quite difficult to make money. Also, it requires you to increase rent in order to make money, yet, there’s only so much that you can go in this regard. You can’t increase your rent indefinitely. This is why sometimes an average-valued property can give a much better return. Ideally, you want the property to return 1 to 2 percent of its total value each month.
Long term investment that returns over the course of time
Another thing you need to do is understand the type of investment that you’re currently making. We’re talking about developing the right mindset for the job. You see, with traditional investments in stocks, cryptocurrencies or commodities, you would immobilize your fund for several months or years and get your money back once the value hits the mark you’ve pre-set. With real estate investments, you’ll see your returns over the course of time. This means that, unlike with other investments, you won’t have to wait to see the return (at least a small fraction of it).
This is why you need to learn how to develop the right mindset. The first step on this journey of a thousand miles lies in acquiring necessary knowledge for the task at hand. The traditional way to do this is to find property investment seminars and attend them. You can also get in touch with local real estate experts and financial planners and talk to them about anything that may interest you on this subject. Just keep in mind that, unlike investments that could potentially skyrocket in property value, when it comes to rental property investments, this is always a game that you aim to win in the long run. The upside is the fact that your wealth-generation plans tend to be much more reliable.
Have a strategy
The next thing you need to understand is that in order to build your wealth, you need to have a solid plan and stick to it. Splitting this plan into several stages is an incredibly important thing. First, you get to pass through an education stage, which is something that we’ve briefly mentioned in the last section. This is the stage in which you get to gather all the data and try to prepare yourself mentally for the task that lies ahead.
Then, you get to the accumulation stage. Here you need to get the funds and acquire rental property. After this, you have the transition stage, during which you need to cover the loans of your investments and get as close as you can to the break-even point. If you’re ambitious enough, you’ll play this close to the chest as long as you can and reinvest any surplus in order to increase your revenue, rather than focus on becoming completely debt-free. In the last stage, once you do get completely debt-free. You get to live off this self-sustaining system that you’ve worked so hard to create.
Pick the right property
So far, we went on and on discussing how you need the right mindset, the right plan and full realization of the situation that you are in. Nonetheless, keep in mind that all of this is possible only if you know how to pick the right rental property. Of course, there are several things that you need to look out for. First, you need to look at the neighborhood. Crime rate and vicinity to schools and parks are just some of the things that affect the offer. More importantly, you need to look at the local job market and the future development of the area. This can give you a chance to acquire the property before its value skyrockets, which would make for an amazing real estate deal.
At the end of the day, generating wealth from rental property requires you to be both a real-estate expert and a seasoned psychologist. Screening your potential tenants and recognizing trouble-makers while they’re still trying to make a good impression on you is an invaluable trait that everyone in the rental property business needs to possess. Practice makes perfect and even if you go through a couple of bumps in the road, this will all be more than worth it in the end.