12 Reasons Why Rental Properties Are the Best Investment

by | BiggerPockets.com

It’s no secret that I love rental properties.

Sure, flipping and wholesaling properties might be fun. Notes and tax liens might have fewer tenants. The stock market might be more popular.

But rental properties are my true business love.

Let me explain why.

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1. Ability to Purchase with Leverage

Rental properties are great because you can borrow the bank’s or someone else’s money to increase the potential return.

This is known as leverage.

In other words, you don’t need to have 100 percent of a property’s purchase price on hand to be able to buy it. Rental properties allow me to buy large properties for far less cash than I might need to purchase stocks or other investments.

2. Ability to Hustle for Greater Returns

Not only can I leverage my cash, but I can also leverage my time and abilities to make magic happen in this game—something difficult to do with other investments.

In other words, I can hustle.

If I want to do the work needed to rehab a property, I can do that. If I want to leverage my networking skills to raise money, I can do that instead. If I want to leverage my knowledge and time to find better deals that provide an even greater return, I can do that.

Rental property investing gives me the ability to hustle for my future.

Related: 5 Ways Real Estate Wins Big Where Stocks Fall Short

3. Ability to Manage My Investment Directly

I’ll fully admit I’m a bit of a control freak, and that drives me toward rental properties in a powerful way. With a rental property, I am directly responsible for the outcome of my investment.

It is up to me to analyze a property before I buy it; it’s up to me to ensure the property is in good condition to rent; it’s up to me to ensure the property is running at peak performance.

I don’t have to depend on some board of directors in New York City for my life’s direction. I can manage my investments directly and personally.

BRRRR-strategy-deal

4. People Always Need a Place to Live

The real estate market will go up and down, but the beauty of rental properties is that demand will never end. People always need a place to live, so unlike the latest tech trend or in your brother’s start-up, real estate is an investment that will last.

Furthermore, because increasing student loans are making qualifying for a mortgage more difficult and our culture increasingly values mobility, the demand for rental properties will only grow over time.

5. It’s Worked for Millions of People Before Me

Perhaps one of the greatest benefits to rental property investing is the proof of concept handed down by millions of successful investors before us. Since the dawn of human civilization, landlords have built wealth by owning and leasing out residential property.

Today is no different. According to a joint survey produced by BiggerPockets and Memphis Invest in 2012, “one out of eight, or 28.1 million Americans, either consider themselves to be residential real estate investors or own residential investment properties today.”

6. Fairly Stable and Predictable

Yes, events such as the market collapse in 2007 do happen, but rental property owners who were investing for long-term gains did not suffer like those who were trying to be “fancy” (or as my good friend and fellow landlord Jordan says, “punk drunk on greed”).

Furthermore, I would argue that the 2007 real estate crash was predictable for those who were paying attention—because one of the defining characteristics of the real estate market is the boom-and-bust cycle that never goes away. Once an investor learns to identify this cycle, the old adage of “buy low, sell high” becomes much easier to achieve.

7. Incredible Variety

Rental properties also offer an incredible amount of variety within the asset class.

I can invest in single-family houses, small multifamily properties, large multifamily apartments, office buildings, high end, low end, Section 8, transient, and any of a number of other options. Then, within each of those classes, I can find larger properties; smaller properties; ones that are newer, older, taller, shorter, ugly, beautiful, and so on.

The possibilities are endless.

8. Simple and Straightforward

Although I’ll never claim that working with rental properties is easy, I do maintain that investing in rental property is fairly simple and straightforward.

Sure, it involves more than just buying a piece of property and placing renters in it, but the strategies for success are not overly difficult to learn or master. To help, a tremendous amount has been written on the topic by those who have mastered it. Books, podcasts, videos, blogs, forums, networking groups, mentorships, and more can be found to help you learn nearly everything you will ever need to know.

Related: Buy & Hold Real Estate is the Ultimate Investment: Here’s Why

In addition, knowledgeable people are available to help. Several months ago, I ran into a situation I didn’t know how to handle (a smoking tenant accidentally lit part of the outside of her house on fire yet claimed she hadn’t). I reached out to other investors on the BiggerPockets Forums and received some excellent advice on how to proceed—and it didn’t cost me a thing.

 

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9. I Can Buy Below Market Value

I was raised by a “garage sale mom” who taught me the value of haggling for the best deal.

As a result, one of my favorite reasons for investing in rental properties is my ability to find properties that I can buy below market value.

In other words, I can shop for a great deal!

Finding properties that are worth $100,000 that I can buy for $80,000 truly excites me and is an integral part of how I’ve been able to build wealth so quickly over the past eight years.

10. Insider Trading Is Legal

In the Wall Street world, there is a concept known as “insider trading,” which is when an investor makes a profit on a stock because he or she had access to some secret bit of information that helped him or her buy or sell at the right time.

This practice is not just discouraged in the stock market, it is also illegal and can even land you in jail (just ask Martha Stewart).

However, as a rental property investor, I can leverage any secret knowledge I can find to benefit my investments. If I know that a new light rail is moving into a neighborhood, I can jump in and swoop up properties before word gets out.

If I hear that a major industry is leaving an area, I can get out of that area before the market declines. And unlike in the stock market, this is 100 percent legal and encouraged in the rental property realm.

11. Multiple Ways to Profit

One of the greatest benefits of rental property investing, especially compared with other real estate niches and strategies, is the opportunity to capitalize on all four of real estate’s major profit sources:

12. Not Having to Be Present to Make Money

Finally, I love the idea that I can make money without physically needing to be present. That’s called a “job,” and I want to avoid that.

Understand that real estate is not generally a 100 percent passive activity, but over time, the systems you create can help you outsource most of the landlording process.

The dollars will roll in whether you get out of bed in the morning or not.

“Why I Love Rental Properties” Facebook Live Video

Recently I took to Facebook Live to explain the twelve reasons why I love rental properties that I’ve outlined above. Check out the video below to hear my explanations (and, at the 10:00 minute mark, the cutest little girl on the planet!)

This blog post was inspired by a section from The Book on Rental Property Investing, written by me!

So, why do YOU love rental properties?

Share your reasons in the comments below and let’s make this list longer!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

30 Comments

  1. Nice article Brandon. I also have your book on Managing Rental properties. Two Quick Points:

    In my area of metro Chicago, the rental market is very strong. You still have to pay attention to prevailing rent rates, but the demand for clean, decent rental housing seems to be higher than any time in the past 15 years I have been investing. There are still areas with tons of vacant houses and all those families ( as well as new families) are looking for a place to live. New construction is still way down and every year houses wear out, burn down or otherwise become obsolete. The demand is outpacing supply, at least here.

    I might quibble with you and your inside information point a little bit. If you know light rail is coming into the area, chances are many others do as well. Here in Chicago many “experts” bought property because they were convinced the 2016 Summer Olympics were coming to the South Side. Their buddy down at City Hall told them it was a sure thing. We all know how that turned out. Hope you all enjoyed watching the Rio Olympics.

    If you know a manufacturer is leaving, chances are many others do as well. Big plants just can’t sneak out. They have to inform their unions, workers, the local authorities, suppliers, etc. etc.

    Buying or selling property based on rumors or hunches usually is not wise.

    Overall, good post. I am closing on house #39 next week. My IRA is buying a nice cash flow rental.

    And if anybody has 20 bucks to spare, Brandon’s book is available on Amazon and probably this web site. It is packed full of detailed good information.

  2. Patrick Anibaldi

    I love rental properties too! Enjoyed the article. I agree with your comparison to stock picking, and I think that insider info can give someone an edge. There is good, bad, weak and strong insider info, and someone can use it to speculate or add it to the analysis of a deal.

  3. I LOVE the passive income & someone else paying for my mortgages! 🙂 I have debates all the time at work about my “price/rent” ratio being too high (18) but in the end they are still paying my mortgage & leaving a little slush to do any repairs. I LOVE my choices & look forward to managing more & more!!! Great post!

  4. Dave Richter

    Have you ever had a bad tenant? One bad tenant and you will change your tune. I prefer investing in debt and equity plays that return a nice yield. I also play the stock market. I agree that rental properties are great but can also be a big hassle and i have been there. I gave up on rentals for that reason.

    • John Teachout

      If you have a stock that tanks do you intend to leave the stock market? (trying to equate that with the “bad tenant” scenario. There is always a risk of a bad tenant, stock market losses and so forth. The option of drawing 1% interest in an online bank doesn’t bode well for future growth…

    • Christopher Smith

      I avoided rental real estate for years myself and stuck to the debt and equity markets where I did very well. Rental Properties appeared to me at the time to be an investment that was just asking for a whole lot of headaches so I avoided them entirely.

      However 2010 came along and the housing crises hit the far SF East Bay area like a hurricane and all of a sudden there were deals galore on nearly brand new homes in middle and upper middle income neighborhoods, some selling at less than 40% of their most recent sale value. I couldn’t resist so I picked up a few really nice properties. After the first year or two of rough seas (that btw came with some equally great opportunities) its been outstanding. All the properties I purchased have doubled in value or more, and all have rents that are respectably high, high enough to very easily cash flow.

      Never thought I would be a landlord, but I am. I have two managers since my properties are now located in two different states, and they do all the heavy lifting. I really in a sense just manage them. I would have never guessed it would have worked out this well. Of course my timing was quite good (or quite lucky), so it could have very easily been a much different story.

      In answer to your question, have I ever had a bad tenant? Yeah I did have one, but he’s gone and all of the rest have been from very good to absolutely excellent. Of course my properties are all in great neighborhoods and the rents are high enough that most of the rift raft in this world couldn’t probably afford them anyways. Plus my managers have proven to be excellent tenant screeners.

  5. Martyn Lockwood

    Nice article Brandon. Some of the points were very obvious, and that is why I think I liked the article…i.e, sometimes we forget that there is beauty in simplicity and we try to re-invent the wheel…No need to right, stick to what we know and keep plugging away.

  6. Chris Field

    Dave I have had a number of bad tenants it’s the cost of doing business.

    Being in the rental business and having bad tenants is no different than any other business. Doctors get bad patients, stock brokers lose money, investment deals go bad.

    As a landlord if you have systems in place a bad tenant is simply handled. They move or are evicted, damage is repaired and the unit is brought back online.

  7. brian ploszay

    I am a landlord. I think creating a small rental portfolio works for many people. But there are two challenges for those who do it full time. First, you have to own a lot of units to make enough income for yourself. Next, it is capital intensive to buy lots of units. Most people do not have the necessary equity to buy millions of dollars of rentals. Basically, you’ll have to raise that equity from other investors.

    • HI Brian, hang in there. I have frequent disagreements with many posters and RE gurus that tell you how easy everything is, but I would encourage you to put some more tools in your toolbox. There are properties that long time landlords don\’t want because they are ready to retire and move. There are estates where the family is not local and does not want to do any repairs. These are ideal places for you to buy and use Seller financing. The seller is familiar with the property and will have first position on the mortgage.

      I have also bought houses from my local community bank ( 0 money down and they financed the property 100%). I am slowly negotiating now with a couple of local friends that have properties and elderly parents that the family is too busy to deal with and they know they cannot sell to a cute young couple that want a house completely and perfectly done to the nines. In short, there are many other ways to acquire rental properties besides walking into a bank with 25% down.

      My issue with using other real estate investors is they are going to want a 8%,10%, 12% return on their money to make it worth their time. It is real difficult to pay that much on a buy and hold rental. Instead look for family and friends with a hundred grand or a million $$ sitiing in a CD or money market at 1% or 2% interest. Maybe they have a 6 figure amount sitting in an IRA. Yes, the stock market is good now, but it could go down 15% or more next year. Give someone a safe, secure, decent return and you can find financing that way. Structure a 5 year balloon with a right to extend. Of course, make the payments on time.

      There are many good books on alternative and seller financing on this site as well as Amazon. They don\’t all work all the time, so use some patience and some creativity. But if you get a half a dozen or 10 cash flow positive investments and the mortgage is getting whittled down every month, you are on your way.

      • Your comment on private money being expensive. I have found that there are now investors who are reasonable on their rates (6 to 8% private money) because rates have been down for so long, and they are more interest in quality than return.

        I have been surprised who is willing to invest also, because I ask almost everyone. “Would you be happy to get a safe 6% return on your retirement fund?” Most say yes and enough follow through to fund every purchase we have desired to make.

        It has been a blessing to have stable private money and they appreciate the good income and no aggravation.

        • Hi Julian, I agree with you on private money. Friends, family, neighbors, perhaps people you meet at REIA meetings would be happy with 6% with a first lien position.

          I was mostly referring to investors, hard money lenders, etc. that want 10 to 12 % plus points.

  8. Bernarr Pardo

    While I agree that rental properties can be a decent investment, be aware that from 1985-2015 properties in about 29% of cities across the U.S. lost value when you adjust for inflation. I don’t consider that good investing. The real key to wealth is in the property appreciation. You need to know when to get into a particular market, and then when to sell to capture optimal appreciation. Your average hold period would be about 5 years. Then, when your sell, you have ability to compound your profits. Compounding will dramatically accelerate your total returns. You just need the right tools to enable you to do this with minimal risk.

    • Martyn Lockwood

      Hi Bernarr. Just looking at your strategy…Instead of selling (after 5 years) when growth has occurred, would you consider holding the property (or properties) and getting out the equity (via a refinance), and then purchase more properties?

      I suppose I’m approaching it from the angle that the growth has occurred and hopefully the rents increased over the same 5 year period, making the property even more cash flow positive.

      Not trying to be contrary here…just seeking to learn more.

      Thanks
      Martyn

  9. Buying and renovating and leasing residential rental property is a new business for me for the last four years. We have over 25 keys now and it is all working better than we planned in every area.

    Most of the properties we bought were ready for a major restoration, and that is something I do well. It was not long into the process before one of my associates commented, “Why are you being so particular, it is only a rental property?”

    From that encounter came our mission statement; “We are not owners of rental property, we are providing a home to some deserving family” From that position comes so many blessings, both to me as owner and to the residents of the homes. For you see, some are called to be pastors, some teachers, some evangelists . . . but we are all called to some position of service to others. My calling is to provided good homes. It is a blessed calling.

    • Jeremy elcox

      Julian Roger, your post is almost exactly what I plan to do. Money is always good but helping people be happy and feel safe is so important. I think so many people forget what money is for in this age…money is to help others AND have a nice life. If you have riches but do not help humanity I do not believe you live a full life. Thanks you for reassuring me that I am not crazy. Jeremy

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