A Quick Yet Full Guide Of Making Money With Your Rental Properties In 2022

When you buy a commercial property, there are more ways of making money on it than just let it for rent to tenants. We are reviewing these options in the article.

Making money with rental properties: what to start with

To start making money from renting houses, you shall estimate important criteria of your property from the financial point of view. We’ve already highlighted the entire process of estimation and submitted important indices in our article “Valuable Information On How To Analyze Real Estate Deals And Understand Their Attractiveness”.

There, particularly, we explained and calculated such indices as real estate metrics, ARV, net operating income, cash flow, cash-on-cash return, and ROI. This material would be really helpful to read to every newcomer to the market of rental properties.

Next, you have to consider what exactly you could earn money from this or that object of property, as letting it for rent is only one of the scenarios (we’ll review them in the next chapter).

Other things you have to consider are the pros and cons of your purchase.

Pros:

• Real monthly income
• A possibility to finance the deal with attracted money from the bank and from the people who are ready to be your investors
• Property’s positive appreciation in future years
• Real estate tax benefits
• It is one of the most reliable investments compared to the rest of the options & the stock market.

Cons:

• Real estate is mostly illiquid and cannot be sold really quickly unless your object is fantastically superb
• You have to manage the property or find someone who will
• This is not a passive income since there will be demands and requests from tenants, which you’ll have to fix, as well as there are taxes and utilities to be paid and various issues connected to the property to be solved
• You can’t know whether your neighborhoods will decline or rise in the future
• You might spend many months doing your research and searching for objects.

Guide on how to make money on rental property

1. Renting. Renting is something most people go for when they have a vision of running a rented property, will for doing it, and enough money to buy or finance. Yes, there will be associated risks and hardships. But if you are zealous about your work, then success becomes much more a result of diligence and persistence than a result of applied talent or skills. Eventually, even if you gain 5-15 kilo bucks a year in pure money (given all expenses and coverage of financing), you are doing well.
2. REIT. REIT is a real estate investment trust (fund). You invest some money in REIT, factually, becoming an owner of some small part of real estate, one of many under the umbrella of this particular REIT. An entrance threshold in REITs can be very small, like, $500. In return, you will get monthly or annual profits from managing property, a part of which you own (doing nothing on your side, in fact). Usually, net profit lies anywhere between 0% and 20% annual. Most likely, it will stick with 5-12%. Alternatively, you could invest in real estate stocks or their derivatives.
3. Crowdfunding. It is an alternative to REIT, only this time it is YOU who is the owner of REIT. You gather money from people to buy and manage real estate objects and then you distribute a yearly profit. Pay attention that it is a very risky activity, which must be done by professionals. Diving into crowdfunding, not knowing how to make money with rental property professionally, the same as not knowing how to find the best objects may turn into dramatic losses for you and your investors. For the same reason, when you ponder about investing in REITs, you should only pick those trusts, which have a positive background and a good history of earnings.
4. Short-term rent. This can be anything, including Airbnb, Sonder, Vacasa, booking.com, VBRO, or other short-term rentals, out of a hundred of all existing in the world. According to market participants’ estimates, a price of 10 days in short-term rent can cover a month of long-term rent cost. Bear in mind that some neighborhoods do not accept short-term rentals in their area or have increased taxes on them, so consider these restrictions beforehand.
5. Renting a house by pieces. Sometimes, you just can’t find a tenant for the entire premises and the option arises – what if you could let it to several people? If they agree to live each in their room of several-bedroom capacity conjoined by one kitchen and one bathroom, then, you could potentially lower the vacancy rate of your object and make similar money. The same goes if you’d let out one or a few rooms of your private house to someone (the latter is called “house hacking”).
6. Fix and flip. At times, this can go even without a “fix”. The nature of this type of real estate earning is that you acquire some object and then resell it over time – this can be months or years. Usually, to increase the cost of the property, it gets renovated and even modified – like, adding a pool, a garage, or another floor. Pretty often, some renovated property is then let for rent for two reasons: 1) if the price of sale is not too big after renovations so one needs to hold more time, and 2) while waiting for a better price, the rental payments will add up to the cash. You could also hold some object for 5-10-15 years without making anything in it, expecting the price growth but this is rather a rare approach.