There's no doubt as to the greatness of the real estate market. If you don't believe it, let's quickly remind you that in early 2022, CNBC reported that roughly 90 percent of the world's millionaires got the majority of their wealth from real estate.
To further buttress the point, there are 223 recorded real estate billionaires, and according to Forbes, roughly ten percent of the world's richest are real estate moguls. And most of them make millions on real estate investments one way or another.
Now that you've fully understood how heavy the market is, you might wonder what it's all about. Do I just flip properties and walk away with a bag of cash?
That's the basic view of real estate, but other aspects are also lucrative; an example is the rental real estate market. The market has grown immensely yearly and is expected to reach $2365.93 billion in 2025.
Are you thinking of venturing into the rental real estate market and needing some guidance on how to make money on rental properties? Sit tight and relax; we've got you covered. If you own rental properties that you are looking to rent out or searching for one to rent yourself, Homes by Ardor has got you covered.
The Pros And Cons Of Renting Properties
Before we dive into the strategies you can use to make money from rental properties, let's look into some of the benefits of owning them.
Pros
One of the most common benefits of owning a rental property is generating passive income through monthly cash flow.
The income is more like receiving a steady salary that doesn't require much stress. For those retiring or planning on investing in other businesses, this passive income can serve as a form of financial security to them.
Other benefits of rental properties include the property appreciation in the long term and the flexibility to sell at the right time. Also, when you own rental properties, you enjoy certain tax benefits that other real estate markets don’t. Rental properties are also good for those that like to invest in real estate remotely.
Cons
You might have to spend a lot to run a successful rental property.
These costs include upkeep and maintenance. Besides that, there's the issue of having problematic tenants and the possible decline of the neighborhood's appeal, leading to a lack of new tenants. Lastly, rental properties are mostly difficult to sell off.
Top 5 Ways To Make Money From Rental Properties
Many people who venture into real estate choose rental properties because they're easy to find, fund, and maintain.
If you've chosen rental real estate too, you'll need to know how to make money on rental properties; here are some ways to profit from property.
1. Cash Flow
This is the most basic way to make money from rental properties. You can easily calculate your income from your net cash flow.
Net cash flow is simply the money you get after you subtract the cost of operating expenses from the monthly rental income.
How does this work? Assuming the monthly rental income you get from a $200000 property is $4000 and the monthly cost of operation is $3000, your net flow is $1000, which will amount to an annual income of $12000.
It doesn't sound so fancy, right? Most people that are into real estate aren't set on the passive net flow. Luckily there are more ways to make money on rental properties.
2. Appreciation
This is one of the beauties of real estate; once you own it, then there's a high chance of you making money from doing nothing. All thanks to appreciation. According to research, the 50 American states saw an average 21 percent increase in the price of housing between 2021 and 2022.
This statistics is basically saying that besides the income you generate from rental payments, you're making money off the house's appreciation. Also, houses in some vital areas are known to appreciate faster than others.
3. Amortization
This is one of the many joys of owning a rental property. Amortization in real estate is simply the allocation of the cost of a property over a while.
As a rental property owner, you can make money from amortization. Assuming you purchased a $200,000 home with a down payment of 30 percent and a 30-year fixed mortgage.
That leaves you with a loan of $140,000 to pay in 30 years. If the monthly mortgage payment after interest and taxes is $750, you'll be making considerable gain by using the rental fees to pay off the mortgage.
4. Inflation Hedge
We all watch the news, the rate of inflation has been growing immensely, and one of the many ways to put a hedge against it is through real estate.
It's no secret that inflation mostly leads to increased house prices, resulting in an increase in rent prices.
If your mortgage stays the same during inflation, the increased rent prices can lead to more income.
So is buying a rental property worth it or is buying a condo a good investment? Absolutely yes! There's nothing more satisfying than the financial security that comes with it.
5. Self Funding
This is another strategy many real estate owners use in their journey to wealth. Usually called the "rinse, wash, and repeat" technique, here's how you can make money from using it on your rental property.
For example, if you buy a home and divert all the monthly income into a reinvestment fund rather than receiving the cash. If you combine the funds with your amortization, house appreciation, and savings in a few years, you'll be on course to buying another home.
It is good when owners of rental apartments invest in special reinvestment funds. That's a great chance for them to grow financially and expand their real estate portfolio.
The Bottom Line On Rental Property Profits
If you plan on coming into the real estate market, the rental market should be your first stop.
Besides the monthly cost of maintenance, it's a great source of passive income, a hedge against inflation, and a great way to make money through amortization.
But before venturing into the real estate rental market, you need to know how to make money on rental properties. We've managed to look at five major ways you can do that. Good luck with your rentals investment!
