Do you wish you had more money going toward your retirement fund so you can stop working sooner? Are you passionate about traveling and would like to take your family on more exotic vacations? Do you have a lot of debt to pay off, making it difficult to build up your savings for the future?
Having enough money is a constant point of stress for many Americans. Even if they are able to pay their bills and add to their savings each year, the dream of achieving a better lifestyle can still be out of reach. How can you reliably build wealth over time to support your lifelong goals of financial independence?
Rental income may be the solution you are seeking. The real estate industry is brimming with opportunities for property owners to generate income from rental payments. Whether you own a home with a studio attached, a vacation property, or a long-term rental complex, there are many ways to build wealth from rental income.
Renting out part of your home
The simplest way to start collecting rental income is to turn part of your home into a separate living space. Many new investors do not have the resources to buy another property that they can rent out. Instead, they will start by investing some money into their primary residence to design a separate living unit. Maybe a finished basement with a separate doorway can become a full studio apartment, complete with a bedroom, kitchenette, living room, and bathroom.
Perhaps you can build an addition that further separates any tenants from the rest of the home. The shift from being a homeowner to being a landlord can be a natural way to start building your rental income portfolio.
People love to travel and find new places to explore. Often, these travelers will seek out more comfortable accommodations than traditional hotel rooms. The vacation rental industry is thriving right now, especially with companies like Airbnb and Vrbo that make it easier for owners to market their properties. Rental rates for vacation properties tend to be higher than long-term rates, so the profits can be impressive. However, there is often more work for the owner since guests rotate through quickly and you have to think about cleaning, maintaining, and re-stocking the property a lot more. Nonetheless, if you manage to keep your vacation property booked, then you are looking at some serious returns on your investment.
Renting entire homes
If turning part of your home into an apartment is not an option, or you have enough resources to skip that strategy, then buying a home to rent out could be the next step in building a strong investment portfolio. Millennials have been especially hesitant to buy homes when compared to past generations. That means the opportunity for rental owners to find tenants has grown. Many younger folks are wary of getting locked into a long-term mortgage, but a year-long lease is much less of a commitment. The trick in renting out a home is keeping the vacancy rate low. If you go several months without a tenant, then your mortgage payment and utilities will quickly cut into your profit potential. Buying a single-family home to rent can be a strong way to start building a real estate business.
Growing the portfolio
Perhaps you have owned a rental property for several years, and it has paid great dividends. You know what it takes to succeed, and now you want to replicate that success to generate more income. It is time to consider how to buy multiple rental properties. Debt-service coverage ratio loans are a common strategy for experienced real estate investors. These loans are approved based on the income potential of a property, but they also require higher down payments. If you have a lot of money saved up from your first property, this could be the perfect way to finance the next one. You should also consider working with a property management company if you want your portfolio to grow. Managing one rental property is hard enough, and the challenge grows exponentially with every property you add.
Choose the Right Rental Income Stream
As you can see, there are numerous paths to greater wealth in the rental property industry. We did not even get into the concept of commercial properties and accepting rental payments from business tenants. Whether you are looking to start as a new investor by renting out part of your home or you are hoping to add more properties to your existing portfolio, rental income can be found in a multitude of ways. The key to success is finding a strategy that suits your lifestyle and skill set.