Updated: Dec 23, 2018
Sure, flipping and wholesaling properties might be fun. Notes and tax liens might have fewer tenants. The stock market might be more popular.
But rental properties are my true business love.
Let me explain why.
Renting your house is a great way to enter the world of real estate investing, but most first-timers (understandably) have a lot of questions. Fortunately, the experts at BiggerPockets have put together a complimentary guide on ‘How to Rent Your House’. All the skills, tools, and confidence you need to successfully rent your house are just a mouse-click away.
1. Ability to Purchase with Leverage
Rental properties are great because you can borrow the bank’s or someone else’s money to increase the potential return.
This is known as leverage.
In other words, you don’t need to have 100 percent of a property’s purchase price on hand to be able to buy it. Rental properties allow me to buy large properties for far less cash than I might need to purchase stocks or other investments.
2. Ability to Hustle for Greater Returns
Not only can I leverage my cash, but I can also leverage my time and abilities to make magic happen in this game—something difficult to do with other investments.
In other words, I can hustle.
If I want to do the work needed to rehab a property, I can do that. If I want to leverage my networking skills to raise money, I can do that instead. If I want to leverage my knowledge and time to find better deals that provide an even greater return, I can do that.
Rental property investing gives me the ability to hustle for my future.
Related: 5 Ways Real Estate Wins Big Where Stocks Fall Short
3. Ability to Manage My Investment Directly
I’ll fully admit I’m a bit of a control freak, and that drives me toward rental properties in a powerful way. With a rental property, I am directly responsible for the outcome of my investment.
It is up to me to analyze a property before I buy it; it’s up to me to ensure the property is in good condition to rent; it’s up to me to ensure the property is running at peak performance.
I don’t have to depend on some board of directors in New York City for my life’s direction. I can manage my investments directly and personally.
4. People Always Need a Place to Live
The real estate market will go up and down, but the beauty of rental properties is that demand will never end. People always need a place to live, so unlike the latest tech trend or in your brother’s start-up, real estate is an investment that will last.
Furthermore, because increasing student loans are making qualifying for a mortgage more difficult and our culture increasingly values mobility, the demand for rental properties will only grow over time.
5. It’s Worked for Millions of People Before Me
Perhaps one of the greatest benefits to rental property investing is the proof of concept handed down by millions of successful investors before us. Since the dawn of human civilization, landlords have built wealth by owning and leasing out residential property.
Today is no different. According to a joint survey produced by BiggerPockets and Memphis Invest in 2012, “one out of eight, or 28.1 million Americans, either consider themselves to be residential real estate investors or own residential investment properties today.”
6. Fairly Stable and Predictable
Yes, events such as the market collapse in 2007 do happen, but rental property owners who were investing for long-term gains did not suffer like those who were trying to be “fancy” (or as my good friend and fellow landlord Jordan says, “punk drunk on greed”).
Furthermore, I would argue that the 2007 real estate crash was predictable for those who were paying attention—because one of the defining characteristics of the real estate market is the boom-and-bust cycle that never goes away. Once an investor learns to identify this cycle, the old adage of “buy low, sell high” becomes much easier to achieve.
7. Incredible Variety
Rental properties also offer an incredible amount of variety within the asset class.
I can invest in single-family houses, small multifamily properties, large multifamily apartments, office buildings, high end, low end, Section 8, transient, and any of a number of other options. Then, within each of those classes, I can find larger properties; smaller properties; ones that are newer, older, taller, shorter, ugly, beautiful, and so on.
The possibilities are endless.
8. Simple and Straightforward
Although I’ll never claim that working with rental properties is easy, I do maintain that investing in rental property is fairly simple and straightforward.
Sure, it involves more than just buying a piece of property and placing renters in it, but the strategies for success are not overly difficult to learn or master. To help, a tremendous amount has been written on the topic by those who have mastered it. Books, podcasts, videos, blogs, forums, networking groups, mentorships, and more can be found to help you learn nearly everything you will ever need to know.
In addition, knowledgeable people are available to help. Several months ago, I ran into a situation I didn’t know how to handle (a smoking tenant accidentally lit part of the outside of her house on fire yet claimed she hadn’t). I reached out to other investors on the BiggerPockets Forums and received some excellent advice on how to proceed—and it didn’t cost me a thing.
9. I Can Buy Below Market Value
I was raised by a “garage sale mom” who taught me the value of haggling for the best deal.
As a result, one of my favorite reasons for investing in rental properties is my ability to find properties that I can buy below market value.
In other words, I can shop for a great deal!
Finding properties that are worth $100,000 that I can buy for $80,000 truly excites me and is an integral part of how I’ve been able to build wealth so quickly over the past eight years.
10. Insider Trading Is Legal
In the Wall Street world, there is a concept known as “insider trading,” which is when an investor makes a profit on a stock because he or she had access to some secret bit of information that helped him or her buy or sell at the right time.
This practice is not just discouraged in the stock market, it is also illegal and can even land you in jail (just ask Martha Stewart).
However, as a rental property investor, I can leverage any secret knowledge I can find to benefit my investments. If I know that a new light rail is moving into a neighborhood, I can jump in and swoop up properties before word gets out.
If I hear that a major industry is leaving an area, I can get out of that area before the market declines. And unlike in the stock market, this is 100 percent legal and encouraged in the rental property realm.
11. Multiple Ways to Profit
One of the greatest benefits of rental property investing, especially compared with other real estate niches and strategies, is the opportunity to capitalize on all four of real estate’s major profit sources:
The loan pay down
The tax benefits
12. Not Having to Be Present to Make Money
Finally, I love the idea that I can make money without physically needing to be present. That’s called a “job,” and I want to avoid that.
Understand that real estate is not generally a 100 percent passive activity, but over time, the systems you create can help you outsource most of the landlording process.
The dollars will roll in whether you get out of bed in the morning or not.
“Why I Love Rental Properties” Facebook Live Video
Recently I took to Facebook Live to explain the twelve reasons why I love rental properties that I’ve outlined above. Check out the video below to hear my explanations (and, at the 10:00 minute mark, the cutest little girl on the planet!)
This blog post was inspired by a section from The Book on Rental Property Investing, written by me!