If you have a pulse, then you probably hope to make a little bit more money than you currently are. Whether you want to achieve a certain lifestyle, save for retirement, or set your children up for success as they grow older, a diverse investment portfolio is one of the smartest ways to earn extra cash now and in the future.
One of the most lucrative and reliable types of investments that you can make is in real estate. The market for property ownership is very strong, with residents and business owners always needing property to live in or work from. Since younger generations are more hesitant to make a big investment like a house, the rental market is saturated with these individuals who want places to live that do not lock them down with a 30-year mortgage.
This is where you come in. Investing in rental properties could be your next big money-maker that brings your portfolio to a whole new level with consistent profits. If you have some extra capital to spend, then you should consider jumping into this level of investment for several reasons.
Typically, securing a personal loan depends upon your income and other assets that you have. This leads to a lot of paperwork, procuring old pay stubs, and tracking income data from years past. It can sometimes be a long and frustrating process. The solution is debt service coverage ratio loans, or DSCR loans. This type of loan is not underwritten by personal income or assets but on the cash flow of the property. The ratio that is calculated determines whether or not the income from rent on the property is enough to cover expenses and the principal and interest. Most lenders that give out DSCR loans have a minimum ratio that must be achieved for you to secure the loan for the purchase. Although DSCR loans are more straightforward to obtain than regular loans, they usually require a heftier down payment as well. If you have some extra capital to spend, then a DSCR loan will allow you to invest in real estate.
If the property that you are investing in is in good shape and well-maintained, then income from rent will be pretty reliable. In many markets, rental units are in high demand with more people being hesitant to purchase a home. This means that you can charge competitive rates while still keeping vacancies low, especially if the property is located in a town or city. Real estate investments make your portfolio more diverse, protecting your financial future and serving as a shield against problems with your other investments.
Some people are afraid of entering the real estate investment sphere because of the responsibilities that fall on their shoulders as the owner or landlord of the property. Property management can be hard work, and if you are trying to bring in tenants through marketing efforts and maintain the facilities, all on top of owning the property, it can be overwhelming. Fortunately, you can outsource many of these duties by working with a property management company. These businesses are experts when it comes to running the day-to-day tasks and they also understand how to fill vacancies. If you do not have the capacity to do this work yourself, or your investment is located far away from where you live, then outsourcing these responsibilities is probably your best option. Though it will cost you money, you can sit back and receive passive income as a result.
Most rental property values tend to appreciate over time. This means that the longer you own the asset, the more its value will increase. Though most people who invest in rental property do so for the cash flow from renters, it is also possible to take advantage of appreciation to flip the property. These two methods are different ways to generate income from real estate investment, and choosing one or the other is probably wiser than attempting to do both. However, if you love the idea of purchasing a property with the intent to sell at a profit down the road, then you can certainly make decent money from it.
Real estate is a lucrative market for investors because people will always need places to live and work. When you approach your decision on whether or not to add this asset to your portfolio, consider the pros and the cons. A DSCR loan makes it possible to secure a property based on its projected cash flow, but it may require a larger down payment at the beginning. Profits will be good, but only if the property is well-maintained and filled with tenants. You can outsource property management for peace of mind, but it will cut into your potential profits.
Weigh these positives and negatives against each other before you decide to invest in real estate to diversify your portfolio and start earning more income.