An investment property is a great way to build wealth and generate extra monthly income. It can be as simple as making the most out of a vacation home or renting out the other side of a duplex. You can event rent out an empty basement apartment!
How do you make money on an investment property?
There are a few different ways to make money on an investment property, including:
- Appreciation—ideally, the land and property that you buy will appreciate in ten or twenty years, meaning that it grows in price and value over time.
- Monthly rent—if you rent a house or property monthly, then you can earn a steady stream of monthly payments.
- Daily rent—if you rent out a spare room or vacation home through an online sharing service, you can receive daily rent payments.
- Extra services—these are convenience products and services that you provide to renters for a small fee.
Common types of investment properties
The most common types of investment properties that people use to generate income are:
- Basement apartment
- Extra bedroom/bathroom
- Vacation home
- Second home
- Apartment building
- Commercial property
How do you make money on extra services?
Extra services are the perks and amenities that you sell to your renters—such as vending machine drinks and snacks; premier parking spots; fitness facilities; tanning booths; or coin-operated laundry machines. These can provide additional income from your investment.
Costs to consider
Add up all your monthly (and yearly) expenses for your investment property before you buy to make sure it’s a worthwhile investment. Be sure to consider:
- Mortgage payment
- Interest fees
- Realtor fees
- Title fees
- Property insurance
- Liability insurance
- Property taxes
- New construction (if needed)
- Rental management company (if you use one)
Getting a loan
You’re better off buying an investment property with cash, because you’ll save a significant amount of money on interest and fees over the life of the loan. However, if you do need a loan, keep in mind that there is a big difference between a loan for a second home and a loan for an investment property—the latter of which typically requires higher interest rates and a larger down payment.
You want to make a profit!
Once you’ve added up all your estimated costs, decide on a rental price that charges enough to cover all your costs—and more. Make sure you’re earning a profit for all your hard work in your new investment property!
We can manage your long-term rental property. Learn more about ReeceNichols rental services for homeowners.