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Real Estate Investments : The rental property advantage


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Some property developers or real estate investors may prefer to sell or flip houses than to keep the house/property and rent or lease out. They may argue that due to the misuse of rented properties by tenants, delayed payment of rent, hassles involved in collecting rent and difficulties in evicting bad tenants, they adopt the strategy to build and sell. This way, such investors get back their capital and make some profit in the short-term. However, for long-term investment purposes, building a house to sell or to buy then renovate and sell might not be an investor’s best option. In this post, we at Variance Posh Ltd. will explain why rental properties can help achieve the dreams of financial independence.

Why rental investments are better in the  long term
  • The property owner has a lot to gain from renting/leasing out especially if the property is situated in a good neighborhood. The real estate investor can get good rents monthly/yearly while the property/real estate gains value. In many cases, a property can gain value at a rate that beats inflation. In other words, this is an investment based on the expectations of long-term capital gains (value of building or property appreciates) and dividends in the form of rental income. Chances are that the property can be sold years down the line for 150% - 300% of the original cost price. So, total earning from the real estate investment when the investor or developer decides to sell after several years will be the rent accumulated over the years plus selling price less maintenance expenses, in some cases , you also need to deduct government levies/taxes and insurance costs.
         Earnings  =  Rents  +  Property Sale  –  Costs
         where  Costs = Maintenance + Taxes/Levies/Fees + Insurance
  • The rental earnings can be put towards acquiring more rental properties or paying back the mortgage. Accumulated rental incomes from some or many rental properties can be a way to build wealth through passive incomes (i.e. reaching financial independence).  This type of business strategy is good for a real estate investor or property developer with good access to investments capital (personal savings or loans at favorable interest rates). Note that building or renovating to sell (flipping houses) is considered as working to earn income i.e. active income because there is a continuous input of significant personal time, efforts and money to generate income. On the other hand, building or owning a rental property is investing in real estate to earn passive come i.e. requires negligible personal time and effort to continue generating income.
  •  A down-side to the investment strategy of building or buying and renovating a property to sell is that it may take months or sometimes years to sell since a greater percentage of the population can only afford to rent and are not able to buy a house. Therefore the sell-off strategy may tie down active capital for a fairly long time even though the real estate investor involved in this flipping strategy did not set out to have their capital investments tied-down for that long.
On a concluding note, an investor must assess his/her goals and objectives then tailor the  investment strategies to facilitate the successful journey to the goals and objectives.
What I Wish I Knew Before Investing In Rental Properties
Investing in real estate properties: Successful startup and growth strategies

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Comments

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