Tips for Purchasing a Residential Income-Generating Property

May 13, 2022
aerial view of st. pete bay side

Photo: St. Pete Builders

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”

- Franklin D. Roosevelt

If you’re thinking about investing in residential real estate to use as income, we’re here to help. Real estate is a great investment because it generates ongoing passive income and can be a good long-term investment, especially if the value increases over time.

Plus, real estate is one of the only investments that allows you to invest in something worth much more than have to instantly pay for. For example, let’s say you find a home for $100,000; if you put down $10,000, chances are you can find a loan to finance the rest as long as you have good credit and stable income.

Even if you've never invested in real estate before, real estate is a worthwhile strategy to consider.

Get Real with Your Intentions

While investing in income-generating real estate can be very rewarding, there is always risk, and there can be quite a lot of work . Let’s look at a few questions you need to ask yourself before opening the door to this journey.  

What are you willing to spend and what location are you hoping for?

These are the first decisions you need to make. These answers will decide where you look and help you narrow your search for the ideal property. They will also help you determine what income you need to generate monthly in order to be profitable. Be realistic and keep an open mind.

Do you intend to flip and sell or rent out on a long- or short-term basis (think Airbnb)?

Deciding what to do with the property and how it will generate income is important.

The sole purpose of flipping a property is to make fast money. Your whole endeavor, from purchase to rehab to reselling can take place in a few months, then you close the door several thousand dollars richer.

The most important benefit of renting your investment property is the monthly income you will gain from it. You can start making money as soon as it’s on the market, and as long as you are able to attract and retain tenants, you will earn income every month, or week, depending on whether you rent long- or short-term, like Airbnb or VRBO.

Will you manage the property yourself or use a property management company? How you manage your property is crucial to success. Whether dealing with rental applications or repairs, mishandling of either of these can make or break your investment.

Managing a property can be time-consuming and may not be something you want to handle on a daily basis. Hiring a professional property management firm will alleviate these issues but will cut in on your return on investment.

Benefits of Investing in Income-Generating Properties

Investing in rental property has more benefits than what you may expect. It may provide steady cash flow as well as have the potential for value appreciation over the long term. In short, this type of real estate investment can allow you to enjoy a steady income and more financial freedom, plus a few more perks you should know about.

You’re in control. It’s up to you how much money you spend and how the property is handled. You decide on who you rent to, how much you'll charge and how involved you want to be in the day-to-day management.

Cash flow. According to Roofstock, income-producing property can easily generate net cash flows of 6% or more every year.

Property appreciation. One of the most unique things about investing in real estate is that you can choose to purchase the property outright—we at Barkett Realty have seen an increase of cash-only offers. Alternatively, you can use a small amount of money while borrowing the rest, generating monthly income, and potentially reselling at a profit when ready, thanks to steadily increasing property values.

Tax-write offs and deductions. One of the biggest financial perks of rental property are the investment tax deductions you’re able to take including mortgage interest, property tax and insurance, operating expenses, depreciation and costs to maintain and repair the dwelling.

Ideally, it can pay for itself. Since you are collecting money monthly, or weekly, from renting the property, the ultimate goal is that the mortgage is essentially being covered.

Investing in Multi-Family Properties

Are you thinking bigger than a single-family home? That’s great! Multi-family properties are apartment buildings, condo communities, or, on the smaller scale, duplexes and triplexes. And you'll typically pay a much smaller price tag per unit when you buy a multi-family property versus a single home.

According to Investopedia, “renting out multi-family real estate consistently generates a strong cash flow every month and this remains the case even if there are a handful of vacancies or a couple tenants are late with payments.”

Purchasing a multi-family unit can also provide you with a place to live while generating income by renting the other units—reducing your own personal home costs. This rings true for our accomplished agent Chris Featherston’s client, who recently purchased a multi-family unit. Originally from a small island in the Caribbean and recent graduate of USF, she was ready to put down roots. She decided a multi-family unit was the best option for her first home purchase since she could rent out the other unit to reduce her monthly costs.

Finding Your Next Investment

Now that you’ve decided to invest in an income-generating property and have opened the door to learning more about how to make it happen, it’s time to get to work. Barkett Realty can help you with a commercial or residential property to make this dream come true, so you can start making money!

We’re ready if you are. Simply reach out and we’ll help you put your plan into action. 

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