Investing in rental properties is a great starting point for real estate investors. Rental properties can provide cash flow and generate value from appreciation. Investors also get tax incentives and deductions from owning real estate.
While it can be a lucrative method of real estate investing, there’s a lot to know before investing in rental properties. This comprehensive guide will show you how to start investing in rental properties as a beginner. We’ll go over what it takes to invest in rental properties, common mistakes to avoid, and things to know before you buy your first rental.
What is a rental property?
A rental property is a residential or commercial property that’s leased or rented to a tenant over a set period of time. There are short-term rentals, like vacation rentals, and long-term ones, like those under a one-to-three-year lease.
Residential rental properties are one- to four-family homes, which include:
Types of commercial rental properties include:
Residential rental properties are often more accessible to beginners because they’re less expensive. Less money is required upfront and that often means that it’s easier to get financing. While there are exceptions, residential rental properties are also typically easier to manage. In most cases, managing one tenant is easier than managing twenty.
For these reasons, this comprehensive guide to investing in rental properties is focused on residential rentals.
Most investors buy a rental property with the goal of producing positive cash flow — earning more income each month than they spend on expenses. Not every rental has a positive cash flow at first, but building up to one is a common goal of rental investing.