One Size Does Not Fit All
Rental properties can be a good source of passive income and capital appreciation over time. Despite popular media depictions, being a landlord is not effortless and it’s not for everyone. Understanding the demands of being a landlord and setting your expectations are as important as selecting the right properties for the success of your property portfolio.
While there are similarities between buying a property to flip it or holding it to rent out a property, there are substantial differences.
Understanding Different Time Frames and Expectations for Return on Investment
Time frames and expectations for a return on investment from a rental property are as different as each property and unique to each investor. Investor considerations should include:
In these examples, holding and managing a property as a rental with a plan of acquiring and disposing of it in two, five, ten years, or more must factor into what your acquisition and carrying costs. Of course, variables in this are the anticipated appreciation and ARV of the property and, depending on how long you plan to own the rental property, the life expectancy of the structure and its components.
Returns Over a Longer Period
How long an investor keeps a rental property in their property portfolio depends on their personal choice and strategy. Some are looking for long-term passive income. Their initial plan is to hold a property that’s breaking even, anticipating the future increase in equity as part of their ROI. Other investors may be looking shorter-term of three to five years. They’ll want a little bit of a return every month but they may be looking to cash out that equity sooner so they can move it into a different property investment.
As an investor in a residential rental property, you have more of a long-haul investment looking at what your return is every year on the rent, looking at the monies you’re going to be putting out, your anticipation of costs ahead besides just carrying for that shorter-term, and then you’re also calculating in the growth of the rental and sales market overall
Maximizing Your Rental Property Portfolio for Returns
There’s a difference between an investor that’s going to hold a property and rent it with a goal of making their return on investment when they sell versus one who’s investing in a rental property for lifetime passive income from the beginning.
Savvy investors diversify their rental real-estate portfolio with properties with different time frames for ownership and investment returns. An investor may have a mix of properties with some generating aggressive short-term returns, some targeted for passive income into retirement, and some that are leveraged, breaking even, making a small profit, with the intent of selling. With a solid strategy, a carefully planned and maintained portfolio of rental properties an investor can generate both monthly income and the cash necessary for acquiring new properties as they move forward.