The global real estate rental property report reveals the rental property market size will reach $2.3 billion by 2025, from $1.7 billion in 2022, according to PR Newswire. Real estate investment doesn’t revolve around flipping homes only. Being a landlord is one of the simplest real estate strategies to make huge profits.
In the modern world, investing in properties and renting them out at affordable rates while keeping up with maintenance is one of the most lucrative ways to generate secondary income as a landlord. Over time, this passive income strategy may feel like a full-time job. However, to enjoy high returns on investment, you need to follow the right steps. Keep reading to learn how you can make secondary income renting affordable properties.
Decide If You’re Fit To Be A Landlord
Before anything, ask yourself if being a landlord is a good fit for you. Note that renting out property can be profitable, but it comes with a set of challenges.
Besides choosing the right investment property, preparing the units, and finding tenants, you need to think about maintenance and cleaning. Ask yourself if you can handle minor repairs like fixing a clogged toilet. Do you know how to repair a damaged drywall? Can you find an end of lease cleaning Melbourne company or another company local to you, that can facilitate the deep cleaning you may need after your tenants move out? As a landlord, you can always hire an expert to do minor repairs, but doing so will reduce your profit margins, especially if you own one rental unit. Embracing DIY maintenance and repair tasks can help you save a considerable amount of money. However, as you add more rental properties to your investment portfolio, you’ll need to hire professional maintenance workers, cleaners, and a property manager.
Understand Everything About Affordable Housing
Once you’ve decided you’re fit to be a landlord, it’s crucial to know everything about affordable housing. Invest time and effort to learn the various aspects of investing in affordable rentals and how you can generate passive income. Typically, property developers design affordable housing to ensure community members with low-to-medium income have access to rental units at reasonable rates.
Note that investing in affordable rental properties increases your chances of enjoying tax benefits. When you set aside part of your property or several units to provide affordable housing, you qualify for federal tax credits. There are four groups of people that need affordable housing. This includes seniors and individuals living with disabilities, the military, the homeless and families recovering from addiction, and students. These groups of renters receive financial help from the government to pay their monthly rent.
Research Your Local Property Market
Given rental properties guarantee a high return on investment, it’s tempting to invest in the first rental property you see. However, doing so increases your risk of making bad choices. With this in mind, research the local real estate market thoroughly. First, evaluate the rental units available in your local area to get a clear picture of the amount of rent you can charge. Experts in the industry recommend the use of a real estate database to ensure you get accurate data.
When researching, you’ll notice several factors determine the rent tenants pay. Elements that affect the cost of rent include location, size of property, and amenities. It’s also wise to familiarize yourself with housing laws during the research process. The last thing you want as a landlord is to get into legal disputes with tenants. Important laws you should know and adhere to include eviction laws, laws about discriminating tenants, and rules governing tenant-landlord relationship.
Know The Considerations For Affordable Rental Property Investment
Understanding the investment considerations for affordable rental property is vital to earning high profits. As an investor, you want to make sure your rental units are profitable and marketable. Therefore, the first thing you’ll want to consider is affordability. You want to be sure your investment property will offer high returns after setting affordable rates for low-income renters.
With that said, find out the median income of your target tenants. This step is essential, as it helps you determine the type of property you should buy and the number of rental units you’ll be renting out as affordable housing units. There are several government and online sources where you can get details regarding the median income of residents in your area. Use the information you’ve gathered to calculate affordable rent. This step entails calculating 30% of the region’s median income to determine your gross income you should expect for each affordable rental property.
Pick Your Property
This is the single most important step in your property investment journey. After researching your local property market and housing regulations, you need to choose the right property. There are many considerations when selecting investment properties, and the most vital one is location. So, search for an area where you can set rental rates enough to cover property costs, such as maintenance and a mortgage. Keep your rents affordable to attract the right tenants.
Another crucial aspect to look at when choosing investment properties is the community setup. Find out if the property you want to buy is under a HOA. If so, invest time to learn what a HOA is and how it works. In simple terms, homeowners association (HOA) is formed by a property developer. And its primary goal is to serve the collective interests of communities, improve property values, and preserve communities. HOAs enforce laws and oversee property maintenance, from landscaping to pest control, repairs, and upkeep of amenities. Other factors worth considering when searching for property include security, utilities, proximity to public amenities like malls and social halls.
Calculate Property Profitability
Once you identify a perfect investment property, decide if it’s profitable. If you’re a first-time property owner, determining your property’s potential profitability might seem difficult, but it isn’t. All you need to do is calculate your operating expenses. Start with the insurance rates and property taxes you pay as a landlord. Then add the cost of utilities, property maintenance, and other additional costs like inspection fees and levies charged by your municipality.
You’ll also want to include the cost of advertising your rental units. Remember, marketing campaigns, no matter how simple they are, can be costly. So, calculate how much money and time you’ll spend in marketing and determine how they affect your bottom line. You want to be sure your marketing strategy generates profitable leads without demanding hours of work and a huge budget.
Market Your Rental Spaces
Regardless of how attractive your property is in terms of rent and aesthetics, your plan to make secondary income through renting affordable housing will probably fail if you don’t market. When creating a marketing plan for rental properties, ask yourself if your secondary homes are marketable. Successful property investors suggest changing your units to meet regulations for rental subsidies. Next, learn how to navigate the marketing landscape like an expert. Like any other business, you can market your rental units and reduce vacancy rates using various channels.
One of the best strategies for marketing rental properties is by word of mouth. Past and existing tenants will talk about your properties if they like the features and the services you offer. So, encourage them to recommend friends by giving incentives. Also, ask renters to write testimonials on your website. That way, you can find tenants for your rentals quickly. To achieve positive outcomes, consider investing in multiple marketing techniques. Take advantage of social media marketing, paid ads, blog about rental properties, and implement SEO. You’ll realize marketing your community will help you reach a large audience. Therefore, focus on advertising communities instead of your property.
Consider Renting Out Co-Living Spaces
Once you’ve determined the marketability of your rentals, research different ways to earn passive income through renting your property. One ideal solution is renting out co-living spaces instead of a single family unit or apartment. If you’re not familiar with co-living spaces, they are housing units that allow tenants to share unused spaces like the living room and kitchen. These rental models accommodate more tenants than the typical housing units.
Co-living spaces are ideal options for students and young professionals in search of affordable housing. Given the high cost of living in urban regions and high rents, many people prefer sharing living spaces. That’s because these units guarantee flexible terms, low costs, support plug-and-play lifestyle, improved community engagement, and stress-free living arrangements. It’s worth noting co-living housing trended in 2020, at a rate of 23% higher than traditional rental properties, based on a report by Cushman & Wakefield.
Earn Passive Income With Short-term Rentals
You’re probably thinking, what are short-term rentals and how do you earn income through them? As the name implies, landlords rent out short-term rentals for a short duration, from a couple of days to a few weeks.They’re also a more cost-effective alternative to hotel rooms. If you own property, you can change and furnish it like a hotel, and you can earn a secondary income with little hassle. While short-term rentals are perfect for tourists traveling on a low budget, you can still target low income earners in your area, including young professionals and students. Note that short-term rental units provide up to 30% higher returns than long-term housing properties.
Boost Your Secondary Income By Offering Space-as-a-Service
In today’s digital era, consumers want access to services rather than ownership. For instance, instead of purchasing DVDs, people prefer subscribing to Netflix. Likewise, renters want to enjoy on-demand experiences. Think of space-as-a-service as a plug-and-play model, where all the amenities are available and managed by the landlord. Renting space-as-a-service transforms your title from a landlord or property owner into a service provider.
To gain high profits through space-as-a-service, your properties must have appealing elements like a fitness center, pool, unlimited Wi-Fi connection, community hall, security, transportation, parking space, and playgrounds. These are some of the most desired features in rental homes, so you can be sure of attracting tenants. Since tenants share these amenities, you don’t have to worry about spending vast sums of cash on maintenance. This rental model is becoming increasingly popular in the real estate market as landlords look for new ways to increase their profits as yields in traditional rentals continue to decrease.
Buy Foreclosed Homes And Rent Out
Purchasing foreclosed properties and renting them out is a popular technique to earn extra money in the real estate industry. If you’re new to property investment, you’re probably thinking why buy a foreclosed home? Typically, investors spend less cash on foreclosed properties than they would when purchasing a new home. This means you’ll save a significant amount while enjoying a high discount of up to 15%.
However, investing in foreclosures with the goal being to rent them out isn’t a straightforward process. You need to be cautious to ensure you make informed decisions. With that said, research the market, find real estate brokers specializing in foreclosures, secure financing, and choose the ideal foreclosed houses based on desired rental income and overall return on investment.
Special Considerations For Affordable Rental Properties
There’s no doubt choosing the right property, calculating property profitability, and marketing are crucial to making a secondary income by renting housing units. But there are other special considerations that have a significant impact on your investment property. As a landlord, you have to wear many hats to increase your chances of generating high revenue every month. Start by creating an impressive real estate investment portfolio. Make sure you own the most appealing properties in the right locations to earn profits.
Next, build a brand and maximize your brand’s market value. Doing so is an excellent way to create employment opportunities for construction laborers, real estate agents, and marketers. In short, you won’t only be generating passive income but also enhancing the quality of community members.
Many property investors add affordable housing to their investment portfolio because it offers many opportunities to earn passive income. Aside from tax credits, you can earn secondary income through rent. To maximize your rental income, you need to understand the aspects of affordable housing, choose the right rental properties, calculate profits, and market your properties. You should also explore different rental models like renting out co-living spaces, space-as-a-service, short-term rental units, and buying foreclosed homes and renting to tenants.
