About a week ago, Bank of America released details of its so-called “Mortgage to Lease” program, which as the name implies, allows homeowners to lease the homes they previously mortgaged.
So let’s take a closer look to see just what Bank of America is doing here.
First things first, this is a very limited pilot program, so don’t assume you can head down to Bank of America, fill out some paperwork, and then ditch your pesky mortgage but not your beloved house.
In fact, fewer than 1,000 customers will be “invited” to participate in the Mortgage to Lease program, meaning your chances of being selected are only slightly better than winning the Mega Millions jackpot.
Additionally, only homeowners in Arizona, Nevada, and New York are part of the pilot, so if that’s not you, you’re out of luck, at least for the moment.
Requirements for the Mortgage to Lease Program:
[checklist]
Mortgage is owned by Bank of America
Mortgage is 60 days + delinquent
All other loan modification solutions have been exhausted or ignored
Face high risk of foreclosure
Have no second mortgages
Still occupy the home
Have enough income to make affordable rent payments
[/checklist]
So while this looks like a lengthy list, it’s probably not all that uncommon. Well, the lack of second mortgages probably is, as most homeowners who are currently in trouble went with 100% financing. And most used second mortgages to get there.
But for those with one loan who still managed to find themselves underwater, or at least behind on mortgage payments, and couldn’t manage a short sale or deed-in-lieu of foreclosure, this program may be a winner.
That is, if you actually want to stay in the home that gave you so much heartache.
How the Mortgage to Lease Program Will Operate
Assuming you do, participants in the program will agree to transfer title of their home to Bank of America, and their outstanding principal will be forgiven. In other words, you won’t owe the bank anything for owing more than the mortgage is worth.
In exchange, you’ll have the opportunity to rent the house you currently reside in for up to three years, with rental payments set at or below the current market rental rate.
The rental payment will be less than the old mortgage payment, and the homeowner will be relieved of normal homeowner costs, such as homeowners insurance and property taxes.
Bank of America will have a property management company oversee the rental properties, and eventually the inventory of homes will be transitioned to investor ownership.
However, if all goes well, the investors can keep the tenants in the homes for as long as they see fit. And possibly even sell them back to the homeowners.
Will it Work?
Bank of America’s Mortgage to Lease program isn’t at all groundbreaking. In fact, Fannie Mae’s very similar Deed for Lease program has been around for more than two years.
Regardless, it seems like Bank of America’s new initiative is very limited in scope, and only targets customers who have made no effort to change their unfortunate situation.
If anything, it seems like a last gasp opportunity to avoid a foreclosure for BofA (and the losses that come with it), while the homeowner in question is probably just seeing how long they can hang on without making a payment (free rent).
My guess is a homeowner that hasn’t shown any interest in a loan mod or any other foreclosure alternative probably won’t be all that interested in this program, given the only upside is staying in a house they can’t afford, or aren’t willing to fight for.
And why isn’t the amount the same at every community?
There are a few variables that determine that number.
What is the average security deposit for an apartment?
On average, the security deposit is equal to one month’s rent. So, you want to keep this number in mind when calculating how much money you’ll need to give your landlord at move-in. Many landlords require the security deposit and first month’s rent (and sometimes last month’s rent too) before they’ll give you keys.
Landlords set security deposits to protect them from damage and non-payment. Security deposits are set based on four important factors: State law, cost of monthly rent, included amenities (elevator, W/D in unit, private parking, furnished vs. unfurnished, doorman on site, new renovations) and market competition. When anticipating how much a security deposit might be, consider those factors when making an estimate. State law may limit how much a landlord can set a security deposit for, so it is always a good idea to check into your local legislation if you feel the security deposit set was too high.
Coming up with this amount of money may seem overwhelming. But, remember that if you’re in an apartment now, and you haven’t damaged it, you might a security deposit coming back to you. You should receive it within 30 days after you move out. (If you’ve earned its return, but you don’t receive it within 30 days, contact the office).
Where can I find the security deposit amount for a unit?
The amount owed for security deposit should be on the application, and must be on the lease. Before deciding on an apartment, make sure you have the dollar amount of the security deposit in writing.
See also: What you could need for the application process
How much can a landlord charge for a security deposit?
That’s up to the landlord. The average is one month’s rent, but some will charge up to three month’s rent. Most states have a limit to what can be charged, but there are some states that have no maximum.
If everyone else in the area is charging one month’s rent for security deposit, the landlord may want to do the same, to lease the unit. If you’ve seen evidence of that, take it with you in order to negotiate.
Why would a landlord charge more than one month rent for the security deposit?
Some property management companies have a policy that the deposit is 1.5 or two times the monthly rent. However, another reason your deposit may be quoted as higher is due to your less-than-perfect credit history. The landlord may want to rent to you but must offset the risk by charging you a higher security deposit.
Can my security deposit be used as rent?
Your security deposit is not meant to be used to pay your last month’s rent. When the time comes for you to move, you cannot ask your landlord to use your deposit to cover full or prorated rent. However, if you paid first and last month’s rent in lieu of – or in addition to – a security deposit, then you have, in fact, already paid for your last month, and shouldn’t be required to pay for your final month at the time, since you already did so up front.
Pet deposits
If your landlord allows your pet to move in, there will be an additional pet deposit due before the landlord gives you the keys. If your dog or cat is a service or therapy animal, the pet deposit should be waived with a doctor’s note. Bear in mind, you are still financially responsible for any damage your service or therapy animal does to the apartment.
Pet deposits are either refundable or non-refundable. If your landlord doesn’t charge a pet deposit, it may be because they charge monthly pet rent. This can be anywhere from $10 – $30 depending on the type of property and location. Some landlords will charge pet rent in addition to a security deposit, so make sure you ask about the pet charges up front.
When is the security deposit less than one month’s rent?
Some low-income tax credit properties have lower security deposits for those with good credit. In a market-rate complex, a lower security deposit might be offered to incentivize more people to move in.
Paying the security deposit and the first (and sometimes last) month’s rent can be tough, but it’s part of moving. Just remember, you do get your deposit back if you leave your unit in good condition when you move out. It’s part of the business. Once you get that part out of way you can focus on making your new apartment feel like home.
How do I get my security deposit back?
Getting a security deposit back can be difficult when dealing with some leasing companies. Here’s the best way to ensure you will get most – or all – of your security deposit back:
Take pictures and make notes during initial walk-through. Make sure you agree to everything that is listed on the walk-through sheet before you sign it.
Repair any and all damage that is your responsibility before you move out.
Read your lease carefully and make sure to follow all of the stipulations for moving out. This may include having carpets professionally cleaned and providing a receipt upon your move-out. Make sure you don’t miss these little, and often hidden, stipulations. It could end up costing you a lot more money in the end, as landlords often up-charge for these services if they have to do it themselves.
Follow your move-out process to a tee, including writing and delivering a proper Notice of Intent to Vacate.
Replace any broken blinds yourself.
Before filling any nail holes, make sure that your landlord intends to repaint after you leave. Landlords are supposed to do this, but some don’t. Those filled nail holes could cost you in the end.
Take pictures and document everything you do. Keep receipts to prove that you left your old place in tip-top shape, minus regular wear and tear.
Bekah Steenbock is a freelance writer with a background in real estate and business growth. She is a native Austinite, but has called Seattle, Mankato,
Milwaukee, Las Vegas and Atlanta home. Bekah, her husband and their three children love exploring the outdoors in their spare time.
Mortgage rates that spiked last year have continued to rattle Colorado Springs’ housing market in 2023.
In September, for example, year-over-year home sales fell for the 16th consecutive month, a recent Pikes Peak Association of Realtors market trends report shows.
Homeowners who were able to sell their properties within days — and even hours — two to three years ago waited more than five weeks, on average, last month for a buyer to come along, according to the report.
A Pikes Peak Regional Building Department report shows that while single-family building permits — which signal the construction of new homes — rose modestly in September compared with the same time last year, last month’s total nevertheless was the lowest for any September since 2011 and continued a mostly weak trend of building permit numbers for the year.
“The market was dramatically affected by the rapid, historical increase in mortgage rates,” said Gordon Dean, a real estate agent with Re/Max Advantage in Colorado Springs and the incoming board chairman of the Pikes Peak Association of Realtors.
From mid-2019 through 2021, 30-year, fixed-rate mortgages — the most common loan for homebuyers —plunged to an average of 3% and below nationally, according to mortgage buyer Freddie Mac.
Those historically low rates fueled homebuying nationwide and, combined with a shortage of new and existing properties available for purchase, sent home prices to record highs in markets such as Colorado Springs. Home sellers often fielded multiple offers for their properties and frequently received bids that topped their asking prices by thousands and tens of thousands of dollars.
When 2022 began, 30-year, fixed-rate loans averaged 3.22% nationally, Freddie Mac figures show.
After the Federal Reserve began to hike interest rates last year to curtail soaring inflation, however, mortgage rates began a steady ascent. By year’s end, after briefly topping 7%, long-term mortgage rates stood at 6.42%.
Long-term rates stayed below 7% for much of this year, but began to climb again in late summer. By mid-August, 30-year, fixed-rate mortgages had jumped again; on Thursday, they rose to a national average of 7.57%, which was the highest since 2000.
“Several factors, including shifts in inflation, the job market and uncertainty around the Federal Reserve’s next move, are contributing to the highest mortgage rates in a generation,” Sam Khater, Freddie Mac’s chief economist, said in a news release this month. “Unsurprisingly, this is pulling back homebuyer demand.”
And because many homebuyers felt priced out of the market because of higher rates or they no longer could qualify for a mortgage, the pace of buying, selling and construction slowed in Colorado Springs and the Pikes Peak region, along with other areas nationwide.
“I think it’s a good market because the demand is high,” said Grace Covington co-owner and co-CEO of Covington Homes, a Springs builder.
“We have a lot of people who are ready, willing and want to buy, (but) just not able because of interest rates.”
With the third quarter in the books, here’s a snapshot look at where conditions stand for Colorado Springs’ single-family housing market:
• Home sales have fallen and can’t get up — or so it seems.
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In September, Colorado Springs-area home sales totaled 1,008, a 22.1% decline from the same month last year, the Realtors Association’s market trends report and Gazette historical data show. Likewise, last month’s total was the fewest number of home sales for any September since 2013.
“That’s not much, literally,” real estate agent Harry Salzman of Salzman Real Estate Services and ERA Shields Real Estate said of September’s sales.
Other numbers in the association’s market trends report and Gazette historical data that underscore the slowdown in sales: Year-over-year home sales have dropped each month since June 2022; sales for the first three quarters of this year totaled 9,402, a 24% drop from the same period a year ago; and year-to-date sales for 2023 are at their lowest point since the same period in 2014.
Also, homes spent an average of 38 days on the market before selling in September, up from 25 days a year ago.
• Pickings still are relatively slim when it comes to finding a home to purchase.
The supply of homes listed for sale at the end of September totaled 2,484. On the one hand, that total rose 2.6% over August and was the highest for any month since October of last year.
Yet, from a historical standpoint, inventory is low. In pre-Great Recession years, September listings routinely topped 4,000, which provided homebuyers with many more choices, Gazette historical data show.
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Some owners who bought their properties or refinanced when mortgage rates were in the 3% neighborhood and are considering selling are holding on to their properties for now, which has contributed to the tight inventory, real estate experts say.
Sure, those homeowners might want to move up or downsize, but they’re not willing to abandon their rock-bottom mortgage rate and take on a new loan that’s in the 6% to 7% range, the experts say.
At the same time, some homebuyers who purchased in 2021 or 2022 haven’t seen their values appreciate enough to a point where they can sell their property and get the price they need to pay off their mortgage and real estate costs, said Patrick Muldoon, broker/owner and president of Colorado Springs real estate company Muldoon Associates.
As a result, those homeowners aren’t selling, he said. Instead, they’re calling the property management side of his business, Muldoon said, and looking to rent their homes. That keeps those properties from being added to the overall inventory of houses for sale.
“I can’t sell my house or I tried to sell my house or I’m upside down on my house and my next option is, I’m a forced landlord,’” Muldoon said he’s hearing from some homeowners.
• Despite slow sales, home prices rose in September.
The median price of homes that sold last month rose to $475,000, a 3.3% year-over-year increase, the Realtors Association report shows. It was the first year-over-year increase in median prices since November 2022.
But if sales fell in September, why did prices increase? Blame tight inventory, Salzman said.
“It’s got to be supply and demand. Not a doubt,” he said. “We don’t have very many selections for people to take a look at, no matter what the price range is. Particularly, even if you’re, say, under $500,000 in a purchase price? There’s not much inventory to select.”
As a result, some sellers can list their homes at prices that are a little more aggressive than a few months ago, Salzman said.
“You’re going to get a better price today because if you’ve got a buyer today at these interest rates, they’re a motivated buyer,” he said. “And when you’re a motivated buyer, sometimes you might have to pay a little more, like we did a couple years ago, because there’s no inventory.”
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Muldoon suggested that the latest figures showing an increase in median prices in September might be misleading. Some of the homes that sold last month are on the high end of the price range, which pushed up the overall median price, he said.
A real estate agent friend told him “we’re only grading the winners,” Muldoon said. “We’re looking at the stats and we’re only grabbing the houses that have sold, and those houses that have sold are the upper end of the bell curve.”
And some sellers still are getting top dollar for their properties, even as the market has cooled.
Attractive properties that are in good condition and priced correctly to reflect the current market and comparable homes in their neighborhood still can receive multiple offers — just not nearly as many as a few years ago, said Dean, of Re/Max Advantage.
“When you can provide someone in a desirable school district and great condition and, hypothetically, a stucco rancher with three bedrooms on the main (floor), that is a golden goose egg in the marketplace and I would be shocked if, priced correctly … it’s probably going to draw multiple offers,” Dean said.
In fact, he said he and his wife, Amy, who’s also a real estate agent, marketed a home that fit that description — and fielded a cash offer that came in about $15,000 over the seller’s asking price.
• The new home side of the housing market also has felt the effects of high mortgage rates.
In September, building permits issued for the construction of single-family, detached homes totaled 136, a slight, 1.5% increase over the same month a year earlier, according to the Pikes Peak Regional Building Department. That figure doesn’t include townhomes, condominiums or duplexes.
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Even with last month’s increase, and an inflated number of permits that builders pulled in June in advance of a building code change taking effect, single-family permits for the first nine months of 2023 totaled 1,791 — a nearly 35% nosedive from 2,738 during the same period in 2022.
“The interest rate environment is certainly the main culprit for that,” said Tom Hennessy, president and CEO of Challenger Homes, one of Colorado Springs’ largest builders. “When you have interest rates pushing 8%, you’re just making affordability that much more difficult for that many more people.”
The difficulty in affording today’s higher mortgage rates stands in contrast to a generally positive outlook for the Springs, Hennessy said.
“What’s really kind of interesting is, there’s still people looking (for homes) and Colorado Springs’ economy is still generally pretty good,” he said. “Unemployment is still low. We still have a lot of jobs moving in. We have a lot of military in and out of the area. People want to buy. It’s just of matter of can they buy?”
Not only have buyers been stymied by high mortgage rates, but their costs for consumer goods, utilities and other expenses have soared because of inflation, said Covington, who’s co-CEO and co-owner of her homebuilding company with her husband, Ron.
Businesses saddled with high interest rates for loans have passed on their increased costs to consumers, which also affects their personal finances and their ability to buy homes, Grace Covington said.
“We really just need to get inflation under control and rates down again,” she said.
For now, Challenger, Covington and other builders continue to woo buyers with mortgage rate buydowns — incentive programs in which they effectively reduce, or buy down, a mortgage rate for the first few years of a loan to help buyers afford monthly payments and get them into a new home.
A year ago, builders also might have offered incentives such as discounts on premium lots or reduced prices on home upgrades to interest a buyer, Hennessy said.
Now, however, mortgage buydowns are the main focus for builders, he said.
“Today, it pretty much all deals with house payment and buying down the mortgage rate,” Hennessy said.
“The name of the game today is house payment. How can I get into a house with a payment that I can afford?”
• What’s ahead for Colorado Springs’ housing market?
That’s a question that every real estate agent and builder wants to know.
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Salzman advices homebuyers who can afford a home to take the plunge now, even if prices remain high. The value of their investment always will appreciate over time, he said, and today’s 7% mortgage can be refinanced lower when rates fall.
Even if rates are high today, Salzman suggests that buyers talk with their mortgage lender to ask about getting a break on their loan origination fee in exchange for agreeing to refinance with the same lender in two to three years.
“Because their business is way down, anything is negotiable,” Salzman said of mortgage lenders.
A drop in mortgage rates, not surprisingly, would help boost sales and the overall market, Dean said. But how far would rates have to fall?
Six percent and below, he said, would help encourage borderline buyers to jump back into the market and persuade owners with a low mortgage rate to feel comfortable leaving it behind and accepting a higher rate to get the home they want.
“If we do see a reasonable drop, and I say reasonable, 6 flat on interest rates, we’re going to have a very robust market again,” Dean said.
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“For me personally, at the end of the day … it’s that interest rate that’s going to be the main driver for anybody,” he added. “Affordability. That’s affordability, in my opinion.”
Muldoon, however, echoed his previous bearish comments on the outlook for the housing market.
A recession in 2024, waves of layoffs, more bank failures, continued high interest rates and other national economic forces could have a ripple effect on local businesses and employers in Colorado Springs, Muldoon said. As a result, the local housing slowdown could continue and even worsen — with falling prices being one of the biggest impacts, he said.
“If Colorado Springs started showing signs of economic issues,” Muldoon said, “then you would see sellers start with some pretty swift reductions on prices.”
Many people are lured into the world of real estate investing by stories of millionaires who started their journey with no money down or no steady employment. But the reality is that making money in real estate isn’t easy; a good credit score, investment capital and steady income can help in the beginning.
You’ll also need to grasp the nuances of the local real estate market and learn how to manage financial aspects such as cash flow and property taxes. While real estate buying, selling, and renting may not be much like a game of Monopoly, it is possible to earn steady side income, supplement your retirement, or even build a full-time real estate investment business with the right tools, knowledge, and patience.
Unlike mutual funds, the stock market, cryptocurrency or many other investments, real estate is tangible. Real estate is a concrete asset—one can see, touch, and even reside in. That gives investors a sense of security. However, it also creates unique challenges.
Managed well, the stability and passive income from rental properties can be a safety net against more volatile investments.
This guide is here to clarify the process for beginners. It aims to empower you to make informed decisions, reduce risks, and lay a strong foundation for your real estate investing journey.
Benefits of Investing in Real Estate
The allure of real estate goes beyond the mere ownership of tangible assets. It presents a robust suite of financial benefits that have the potential to amplify wealth and provide stability in uncertain times. As we navigate the advantages, it becomes evident why many seasoned investors prioritize real estate in their portfolios.
Steady and Passive Income
Real estate investing, especially in rental properties, stands out for its potential to provide a consistent revenue stream. When you own a rental property, the monthly or quarterly distributions from tenants contribute to steady income, which can safeguard your finances against unexpected events or economic downturns.
This consistency contrasts with the often erratic nature of the stock market, which can fluctuate daily based on global events, company performances, and other factors. Additionally, for those aiming to attain financial freedom, the passive income generated from real estate can be a step closer to achieving that goal. Over time, as the mortgage payment decreases or remains static, rental rates may rise, increasing your monthly cash flow.
Appreciation Potential
Every investor dreams of their assets appreciating, and real estate often doesn’t disappoint. While there can be periodic downturns in the real estate market, historical trends suggest that properties generally gain value over the long run.
This means that not only can investors benefit from rental income, but they can also potentially see substantial gains when they choose to sell the property.
Tax Benefits
Navigating the world of taxes can be intricate, but real estate investors often find several advantages here. The ability to deduct mortgage interest and property taxes from taxable income can be a significant financial boon.
Furthermore, strategies like depreciation allow real estate investors to offset rental income, reducing their tax burden. Consulting with a financial advisor can help investors maximize these benefits and understand other potential tax advantages, such as 1031 exchanges or deductions related to property management.
Diversification
The saying “don’t put all your eggs in one basket” is sound investment advice. Diversification is a fundamental strategy to mitigate risks. By adding real estate to an investment portfolio, investors introduce a separate asset class that doesn’t directly correlate with the stock market or mutual funds. This can provide a buffer, ensuring that a downturn in one sector doesn’t wholly derail an investor’s financial trajectory.
Leverage
Leverage, in the context of real estate investing, refers to the ability to use borrowed capital to increase the potential return on an investment. When you purchase property with a mortgage loan, you’re often putting down only a fraction of the property’s total cost, while still reaping the benefits of its entire value in terms of appreciation and rental income.
This magnifies the return on investment, as the gains and income generated are based on the property’s total value, not just the down payment. It’s a powerful tool but should be used wisely. Over-leveraging or not accounting for potential rental vacancies can turn leverage into a double-edged sword.
Types of Real Estate Investments
As one dives deeper into the world of real estate, it becomes evident that this asset class is multifaceted, with various avenues to explore and invest in. The right choice often depends on an investor’s goals, risk tolerance, budget, and expertise. Here’s a closer look at some prominent types of real estate investments:
Residential Properties
Residential properties cater to individuals or families. They range from single-family homes to duplexes, triplexes, high-rise buildings with apartments, and other multi-unit properties. You may encounter the term “MDU” or “MUD,” which stand for multi-dwelling unit or multi-unit dwelling, to describe anything more than a single family home, or SFR (single family real estate).
Investing in residential real estate, especially the SFR market, is often a beginner’s first step due to its familiarity and the perpetual demand for housing. While these properties can be a reliable source of rental income, investors should be prepared for the challenges tied to property management, tenant turnover, and ongoing maintenance.
Commercial Real Estate
When one thinks of skyscrapers lining city horizons or sprawling office parks in suburban locales, that’s commercial real estate. These properties are tailored to businesses, and can include complete corporate headquarters or individual offices.
Commercial leases often run longer than residential ones, offering the potential for stable, long-term rental income. However, the entry point can be higher, with larger down payments and a more extensive due diligence process. Additionally, commercial real estate values can be closely tied to the business environment of the locality.
Industrial
Industrial real estate encompasses properties like warehouses, distribution centers, and manufacturing facilities. They’re integral to business operations, ensuring products move efficiently from manufacturers to consumers.
Investing in this sector can offer substantial rental yields, especially if the property is strategically located near transportation hubs. However, the nuances of industrial real estate, such as zoning laws and environmental concerns, necessitate a more in-depth understanding than residential or commercial sectors.
Retail
This sector includes shopping malls, strip malls, and standalone stores. What’s unique about retail real estate is that leases sometimes include a provision where the landlord gets a percentage of the store’s profits, termed as “percentage rent.”
In a thriving commercial area, retail properties can be quite profitable, with long-term leases and the potential for appreciating property values. However, investors should be mindful of shifts in consumer behavior and the evolving retail landscape, especially with the rise of e-commerce.
Multi-Purpose Commercial
A new breed of commercial real estate has emerged to compete with the growth of e-commerce. Multi-purpose commercial spaces blend housing units with office space and retail, often adding hospitality and entertainment venues.
Typically, these spaces are the domain of large real estate investment and property management firms. But if you invest in commercial office space or retail, you will be competing with these multi-purpose properties for tenants, so they are worth acknowledging.
Real Estate Investment Trusts (REITs)
For those not keen on direct property ownership, REITs present an attractive alternative. These are companies that own, operate, or finance income-producing real estate across various sectors. What makes REITs distinctive is that they’re traded on stock exchanges, similar to stocks.
By investing in a REIT, you’re buying shares of a company that manages a portfolio of properties, thus gaining exposure to real estate without the hassles of property management. Moreover, by law, REITs are required to distribute at least 90% of their taxable income to shareholders, leading to potentially attractive dividend yields. However, it’s essential to remember that like all publicly traded entities, REITs can be subject to market volatility.
9 Ways to Invest in Real Estate
Investing in real estate can seem tricky for beginners. But, with time and patience, anyone can master it. Focus on simple investment methods first to get to know your local property scene, meet experienced investors, and learn how to handle money wisely. As you learn and grow, you can dive into more complex investment options.
Here are some great ways for beginners to start in real estate:
1. Wholesaling
Acting as the bridge between property sellers and eager buyers, this method primarily focuses on securing properties at a rate below the prevailing market value. The secured contract is then transferred to an interested buyer, ensuring a margin for the wholesaler.
2. Prehabbing
Unlike intensive property renovations, prehabbing is about amplifying a property’s appeal through minimalistic enhancements. These properties, once given their facelift, usually attract investors with a keen eye for larger renovation projects.
3. Purchasing Rental Properties
An avenue promising consistent returns, this involves acquiring properties to lease them out. For those not inclined towards the intricacies of landlord duties, there’s always the option of hiring seasoned property management professionals.
4. House Flipping
A strategy that has garnered significant attention, house flipping involves a cycle of purchasing, upgrading, and promptly reselling properties, aiming for a profit. The emphasis is on swift transactions and keen market acumen.
5. Real Estate Syndication
Envision a collective where like-minded investors come together, pooling both resources and expertise. Such collectives venture into large-scale property acquisitions, and the ensuing profits or rental incomes are distributed among the participants.
6. Real Estate Investment Groups (REIG)
Primarily, these are conglomerates that steer their operations around real estate investments. By amassing capital from a plethora of investors, they dive into acquisitions of sizeable multi-unit residences or commercial holdings.
7. Investing in REITs
Real Estate Investment Trusts (REITs) revolve around the ownership and meticulous management of properties that yield income. However, investors don’t have to handle the management themselves. Instead, participants can relish the benefits of the real estate sector without the responsibilities of direct property ownership.
8. Online Real Estate Platforms
A fusion of technology with real estate, these platforms seamlessly connect potential investors with vetted property developers. This synergy enables backers to finance promising property ventures and, in exchange, enjoy periodic returns that encompass interest.
9. House Hacking
A blend of homeownership and investment, house hacking is about maximizing the potential of a multi-unit property or a single-family home. Investors live in one segment while leasing out the remaining portions. This dual approach can significantly reduce or even negate monthly housing expenses, serving as an excellent introduction to the world of property management for novice investors.
6 Steps to Get Started in Real Estate Investing
Starting on the path of real estate investing requires careful planning, due diligence, and a methodical approach to ensure that your investments are sound and have the potential for fruitful returns. Whether you’re dreaming of becoming a millionaire real estate investor or merely looking to diversify your investment portfolio, following a structured process can be the key to success. Here’s a step-by-step breakdown:
1. Assess Your Financial Health
Every investment journey should begin with introspection. As an aspiring real estate investor, it’s essential to have a clear understanding of your current financial standing. Ask yourself questions like:
How much capital am I willing to invest?
What are my short-term and long-term financial goals?
Do I have an emergency fund set aside?
Evaluating your risk tolerance is equally crucial. Some might be comfortable flipping houses, while others might prefer the steadiness of rental properties. Consulting a financial advisor at this stage can provide insights tailored to your financial health, enabling you to make informed decisions as you proceed.
2. Dive Deep into Market Research
Knowledge is power in the world of real estate. The local market can be significantly different from national or even statewide trends. Delve deep into understanding:
The demand for rental properties in your target area.
The average property values and rental rates.
The historical appreciation rates.
Any upcoming infrastructure projects or urban development initiatives.
Furthermore, familiarize yourself with real estate terminology. Phrases like “cap rate,” “loan-to-value,” and “operating expenses” will become a regular part of your vocabulary. The better informed you are, the more confidently you can navigate your investments.
3. Assemble Your Real Estate Team
No investor is an island. Success in the real estate business often hinges on the strength and expertise of your team. Look for professionals with a proven track record and positive reviews. Your team might include:
Real estate agents who understand the investor’s perspective.
Property managers to streamline tenant interactions and maintenance.
Lawyers specializing in real estate transactions.
Accountants familiar with the tax implications of real estate investments.
4. Explore Financing Options
The path to acquiring a property is paved with various financing methods. Traditional mortgages are common, but the real estate industry offers other mechanisms like:
Hard money loans.
Private money loans.
Real estate syndication where multiple investors pool resources.
Seller financing.
Each of these has different pros and cons, interest rates, and repayment terms. Understand each deeply to determine which aligns best with your financial strategy.
5. Analyze Potential Properties
The crux of real estate investing is ensuring that the numbers make sense. Before purchasing, assess the property’s potential for generating rental income. Break down:
Monthly mortgage payments
Property taxes
Maintenance costs
Potential vacancy rates
Your goal should be a positive cash flow, where the monthly income from the property (rent) exceeds all these expenses.
6. Negotiate and Close the Deal
Once you’ve zeroed in on a property, the negotiation phase begins. Here, understanding the property’s market value, any existing damages or repair needs, and the local real estate market dynamics can give you an edge.
When it comes to closing, be aware of all associated costs. These might include inspection fees, title insurance, and escrow fees. Being well-informed can help you negotiate these fees and ensure that you’re not overpaying.
Risks and How to Mitigate Them
Like any investment, real estate comes with its set of challenges and uncertainties. The difference between successful real estate investors and those who falter is often the ability to anticipate risks and prepare for them. Here’s an exploration of some prevalent risks in real estate and actionable steps to manage them:
1. Market Fluctuations
Real estate markets can be volatile, with property values rising and falling based on a myriad of factors.
Mitigation: To protect against market downturns, it’s essential to buy properties below their market value. Conducting comprehensive research and seeking expert investment advice can help investors make informed decisions. Remember, real estate is often a long-term game, so a short-term dip can be offset by long-term appreciation.
2. Unexpected Repairs and Maintenance
Properties can often come with surprises, from plumbing issues to roof repairs.
Mitigation: Regular property inspections can catch potential problems before they become major expenses. Setting aside a buffer fund specifically for maintenance can also cushion the financial blow of unforeseen repairs.
3. Vacancy Periods
There might be periods where your property remains unoccupied, leading to loss of rental income.
Mitigation: Properly vetting and building a good relationship with tenants can lead to longer lease periods. Diversifying your investment properties across different areas can also help, as vacancy rates might vary from one location to another.
4. Legal and Tax Implications
Real estate investors can sometimes find themselves entangled in legal disputes or facing unexpected tax bills.
Mitigation: Regular consultations with a tax professional or attorney familiar with the real estate industry can keep investors informed and protected.
Long-term Strategy and Growth
Real estate investing is not just about making a quick buck; it’s about building lasting wealth. Adopting a long-term perspective and continuously refining your strategy can pave the way for consistent growth in the real estate industry. Here’s how:
1. Define Your Real Estate Identity
Are you more comfortable with a buy-and-hold strategy, where properties are retained for long-term growth and steady rental income? Or do you thrive on the excitement of flipping houses, where properties are bought, renovated, and sold for profit? Understanding your preference can help tailor your investment strategy.
2. Reinvestment is Key
For those adopting a buy-and-hold strategy, reinvesting the rental income can substantially grow your real estate portfolio. By channeling profits into purchasing additional properties, investors can benefit from compounded growth.
3. Diversify Your Portfolio
As you gain experience, consider diversifying across various real estate sectors. Branching out into commercial real estate or exploring real estate investment trusts (REITs) can provide additional avenues for income and growth.
4. Continue Your Education
The real estate industry is continually evolving. By staying updated on market trends, attending seminars, and networking with other real estate professionals, you can adapt your strategy and seize new opportunities as they arise.
5. Scale Strategically
A real estate empire begins with just one property. With time, dedication, and a sound strategy, it’s possible to grow your holdings into a substantial full-time income. As you scale, ensure you’re not overextending; always prioritize the quality of investments over quantity.
Key Tips for Beginners
Embarking on a journey into real estate investing can be thrilling, yet the complexities of the industry can sometimes overwhelm beginners. Simplifying the learning curve is essential for novice investors to make informed decisions and find success. Here are some pivotal tips to guide those just starting out:
1. Start Small and Scale Gradually
Many millionaire real estate investors began their journey with a modest property. Purchasing a smaller, more manageable property as your first investment can help you navigate the nuances of the real estate business without being overwhelmed. As you gain confidence and experience, you can then venture into bigger and more diverse properties to scale your portfolio.
2. Prioritize Education
The world of real estate is vast and ever-evolving. Leverage online real estate platforms to learn about market trends, investment strategies, and financing options. Additionally, joining real estate investment groups can be invaluable. These groups not only provide mentorship but also offer opportunities to share resources, insights, and deals with other investors.
3. Location is Crucial
In the real estate realm, location often takes precedence over the type or condition of a property. A mediocre house in a prime location can fetch better returns than a grand mansion in a less desirable area. Research local market dynamics, neighborhood amenities, future development plans, and other location-specific factors before making an investment decision.
4. Networking is Key
Surrounding yourself with knowledgeable people can fast-track your learning process. By connecting with seasoned real estate investors, you can gain insights from their experiences, avoid common pitfalls, and even discover potential partnership opportunities. Attend local real estate seminars, join investor forums online, and participate actively in real estate conferences to grow your network.
5. Stay Updated and Adapt
The real estate industry is not static. Market conditions, property values, and investment strategies can change. Being adaptable and staying updated on industry trends will ensure you remain ahead of the curve and can capitalize on new opportunities.
6. Always Conduct Due Diligence
Before diving into any real estate transaction, thorough due diligence is imperative. From understanding property taxes and zoning laws to estimating potential repair costs and evaluating tenant profiles, leaving no stone unturned will protect you from potential setbacks.
8 Terms Beginner Real Estate Investors Should Know
Venturing into real estate can feel like you’ve entered a world with its own language. Don’t worry; everyone feels this way at the start. Knowing basic real estate terms can help you communicate confidently and make informed decisions.
Dive into these essential terms every beginner should grasp:
Appreciation: Appreciation is the increase in the value of a property over time. It’s one of the primary ways real estate investors make money, especially in growing markets. Appreciation can result from factors like inflation, increased demand, or improvements made to the property.
Capitalization rate (cap rate): Think of the cap rate as a tool to gauge the potential return on a property. It’s a percentage derived from comparing a property’s net operating income to its current market price.
Cash flow: This term captures the money dance – what’s coming in and what’s going out. In the context of rental properties, it means the rental earnings minus all the costs. Positive cash flow indicates you’re earning more than you’re spending.
Equity: Equity represents the value of ownership in a property. It’s calculated by taking the market value of the property and subtracting any outstanding mortgage or loans against it. As an investor pays down their mortgage or if the property appreciates in value, their equity in the property increases. This equity can be tapped into for various financial needs or reinvested.
Leverage: This term refers to the concept of using borrowed money, often in the form of a mortgage, to invest in real estate. It allows investors to purchase properties with a small down payment and finance the remainder. When used correctly, leverage can amplify returns, but it can also increase the risk if property values decline.
Net operating income (NOI): Simplified, NOI is the profit made from a property after deducting all operational costs. It’s your rental income minus all the expenses, showing the true earning potential of a property.
Real estate owned (REO): An REO property is one that didn’t sell at a foreclosure auction and is now owned by the bank. These properties are often sold at a lower price because banks aim to sell them quickly, making them attractive to investors.
Return on investment (ROI): In simple terms, ROI measures the bang you get for your buck. It’s calculated by comparing the profit you made to the amount you invested. The higher the ROI, the better your investment performed.
Conclusion
Real estate investing offers an avenue to diversify your portfolio, generate steady income, and potentially achieve long-term growth. With due diligence, a clear strategy, and the right team, beginners can successfully navigate the complexities of the real estate industry and lay the foundation for a prosperous investment journey. Remember, every millionaire real estate investor started with their first property. Your journey is just beginning.
I have owned rental properties for many years and recently we started using a company that allows us to accept credit cards for rent payments. There are pros and cons to accepting credit cards but our tenants love it and they can pay online with many different sources besides credit cards. It can be quite complicated to set up credit card payments on your own but there are companies that will do this service for you greatly reducing the headaches.
Should you accept credit cards for rent payments?
One of the first things many landlords may ask themselves is should you accept credit cards for rent. There are some ethical concerns with helping tenants get further in debt. Credit cards can get people in trouble and in a bind they may not be able to get out of. However, you have to ask yourself if it is your job to decide how your tenants spend their money and how they pay rent as well.
While some tenants may get themselves in trouble paying with a card some may be responsible enough to handle it. Some tenants may earn points that help them get cash back or travel rewards. Even tenants who can’t use cards responsibly may be in a position to pay rent with a credit card or not pay rent at all. Personally, I don’t think it is the landlord’s job to decide these things. We rent to adults who make their own decisions.
How to get started investing in rental properties.
What are the advantages of accepting credit cards for rent?
Many of my tenants like to pay rent in cash or with a money order. They do not like checks which can make our jobs difficult because someone needs to be available to collect the money. Many of those tenants are willing to pay with a credit card or some other online form of payment. It cuts down on the time it takes to collect rent and the risk of having a lot of cash lying around the office if we accept cards.
If tenants do not have the cash or funds to pay rent, they may have room on their credit card which means landlords may have fewer issues with late rent. This could also be an advantage for tenants as well since they can avoid late rent fees.
What are the most landlord-friendly states?
How can landlords accept credit cards for rent payments?
There are many ways to accept credit cards for payments. I also own a liquor store and mini-mart and we have POS systems to accept credit cards for our customers. I also have some online coaching programs that accept cards through Teachable and I have used Stripe in the past as well. This would be a bit overboard for collecting rent and luckily there are companies that can collect online payments for you and even offer other property management services.
I have been using DoorLoop for a few months and love it. We have set numerous tenants up on auto pay and online payments for rent which they love and makes our lives easier as well. I get notifications when payments are made which is a welcome alert! Many other property management companies will offer this service as well, both local and online. If you are thinking of accepting online payments it may not be as difficult as you think!
Should you use a property manager?
Another thing to consider if you are collecting rent yourself is if it is worth your time. I have a real estate brokerage and people who help me manage the properties and collect rent. There is no way it would be worthwhile for me to do all the tasks involved with property management.
If you are thinking of collecting rent with credit cards you may also consider handing over all of the property management duties as well.
Do you know who your neighbors are? According to the Pew Research Center, 57 percent of Americans say they know some of their neighbors. Whether you frequently talk to your upstairs neighbor or you only see your next-door neighbor on occasion, being a good neighbor is important in establishing yourself as part of the neighborhood and community.
1. Learn the three-step rule
“Our best tip to be a good neighbor is a simple three-step rule: Respect, communication and responsible pet ownership!” says 10 Stars Property Management. “In almost any situation respecting others’ space is a good base for any relationship. Especially with someone living right next door. Just be social and communicate with your neighbors — even just a smile goes a long way! Finally, always be conscious of your pets and their actions. No one wants to step into poop!”
2. Consideration goes a long way
“Being a good neighbor means being considerate of people,” says Nick Slagle of HomeRootsPM.com. “They take care of the appearance of their home and simultaneously are willing to help those in their neighborhood. Good neighbors are friendly and welcoming without being intrusive.”
3. Introduce yourself
“The best way to build into a good neighbor? Introduce yourself!” says Jim Shonts, real estate broker and owner of PMI Elevation. “Neighborhoods can thrive on a sense of community, and getting to know your neighbors soon after moving can help you settle in. And, since not all people are outgoing, those early introductions can give insight on how to respect their personal space.”
4. Show interest
“Whether you are moving in or welcoming a new neighbor, show interest in them by allowing the interruption in your day to greet each other when the opportunity arises,” says Sallie Plass from Etiquette Enrichment. “Ask for or suggest ways to get involved in the neighborhood or community. Intentionally smile, exchange names and phone numbers.”
5. Stay kind
Dr. Lew Bayer, CEO of Civility Experts Inc. suggests that a good neighbor should try to “ease the experience” of the others. “This means try to reduce stress and offer support versus causing stress, e.g. if the neighbor leaves the garage door open, let them know. If the neighbor’s dog barking bothers you, ask if you can give the dog a toy or bone. Turn your music down when you see your neighbor come home. Shovel the neighbor’s walk when you shovel yours. Just do what you can to stay kind…everyone is busy and tired and sometimes struggling. Try to assume the best of people and try to make their life easier versus harder.”
6. Treat your neighbor
“A few days after the new neighbors move in, knock on the door to meet them and include a small plate of homemade cookies or muffins or a seasonal plant (for example, a potted chrysanthemum in the fall) and a sticky note with your name and phone number if they need anything,” says Rachel from the Etiquette Trainer. “Additionally, if there’s a neighborhood Facebook page, let them know about it and encourage them to contact you if they need to borrow anything while settling in, such as a ladder or hand tools.”
7. Prioritize respect
“The adage, ‘Good fences make good neighbors’ still holds true,’” says Diane Gottsman, a national etiquette expert from The Protocol School of Texas, “It’s important to be respectful of each other, especially when sharing a fence, trees hanging over the roof, drainage coming into the other person’s lawn and an assortment of dilemmas. If you are experiencing an issue, reach out in person, and address the issue in a pleasant tone of voice with an open attitude and collaborative spirit. People are much more willing to work with someone who has a smile on their face and shows an effort to get along.”
“If there is a problem that cannot be dealt with neighbor-to-neighbor, the HOA may need to get involved. When renting, talk to the landlord first before going over their head. A good neighbor respects each other’s property, pets and privacy.”
8. Just say hi
“I think being a good neighbor starts by knowing your neighbors. I make sure to say hello every day. Whether it’s a good day, bad day or if I’m in a rush, I believe acknowledgment goes a long way and eventually, that helps cultivate a deeper and better neighbor relationship,” says Pamela Syvertson, broker and owner of Verandah Properties.
9. Model how you’d like to connect with your neighbors
“Challenge yourself to reach out to a neighbor you wouldn’t normally connect with and set the tone in how you want to connect with them,” says Daniel McArdle-Jaimes, the Strategic Communications Officer for the Office of Community & Civic Life in Portland, OR. “Maybe your neighbor is from another country or is a different age than you. Start by introducing yourself and developing a relationship to help make your block a more welcoming place for all. And who knows? You might make a new friend or regular lunch buddy!”
“Also — during and after an emergency, neighbors offer a powerful source of help. Organizing a neighborhood meeting or training through an organization to discuss emergency plans and personal safety is a wonderful way to build community. Many cities offer free resources, like the City of Portland’s Neighbors Together training, which help to start and host these important safety conversations.”
10. Remember empathy
“In addition to following the rules of your community, being a good neighbor requires empathy,” says Stayce Wagner, founder and CEO of Spencer Crane Etiquette. “The ability to see things from your neighbor’s perspective helps you behave with kindness, consideration and respect. A good neighbor cleans up their dog’s poop, doesn’t blast music in the middle of the night and never parks in a neighbor’s assigned space without permission.”
“Additionally, if making small talk with people in your neighborhood is outside your comfort zone, start with a smile, eye contact and a friendly hello. When you feel more comfortable, introduce yourself to the neighbors you see regularly and let things develop naturally. Every introduction won’t lead to a close friendship, but you’ll have established friendly contact.”
11. Talk like adults
“The best advice we can give as a management company is that if you have an issue with a neighbor, you go visit them directly and discuss it in an adult manner. Try this approach first before contacting law enforcement, HOA’s or management companies,” says David Peschio, owner and principal broker at PMI Richmond. “It usually can be resolved without escalation and helps maintain good relationships moving forward.”
12. Remember their name
“Being a good neighbor isn’t difficult, but you need to put a little effort into it to have happy neighborly relations,” says Arden Clise, President of Clise Etiquette and author of Spinach in Your Boss’s Teeth: Essential Etiquette for Professional Success. “When a new neighbor moves in, drop by with some cookies, a plant or some small gift to introduce yourself and welcome them to the neighborhood. Be thoughtful. If you’re shoveling your walk of snow, clear your neighbor’s walk, as well. If you have a neighbor who is elderly, sick or struggling in some way, check in on them and see how you can be helpful. At the very least, make an effort to remember their name and say hello when you see them.”
13. When in doubt, act neighborly
“Remember — be kind. To yourself, to your neighbor, their kids, their pets and their plants and trees,” says Felipe Quintana from Charter for Compassion. “Be forgiving: We all make mistakes — aim to be the best version of yourself. Allow everyone their space but stay there for them on the sidelines if they need a friend. It all comes back in the end!”
14. Keep it friendly
“Being a good neighbor means being friendly and helpful, without being intrusive. Giving a wave and a hello with sincerity is felt and appreciated,” says Mary Ann Brennan, the Director of Rental Services for Del Val Realty & Property Management.
“Love your neighbor as yourself, but don’t take down the fence.” — Carl Sandburg
When you’re looking for a new place to live, make sure to ask your future landlord or property management company about the local community. While you can’t pick who your neighbors are, you can ask questions to get a sense of who could be living next door.
Charlsie Niemiec has spent the last 10 years working as a content marketing and social media editor and strategist. With in-house experience ranging from The Elf on the Shelf to CNN to Piedmont Healthcare, Charlsie has freelanced for the last four years with clients ranging from ESPN to the Atlanta Beltline. When she’s not copyediting or scrolling on Twitter, she is walking her very scruffy wirehaired terriers mixes Leonard and Biscuit or probably watering one of her 54 houseplants.
I own one rental property out of my area in Cleveland Ohio and we just got that tenant out after she did not pay rent for three years! All of my other rentals are in Colorado and I usually have no problems with evictions or getting tenants out, yes even during the Covid year. However, I learned that some cities and states can be a nightmare and do everything they can to make life difficult for landlords, especially out-of-state landlords. If you are going to invest in real estate in other areas make sure you do your due diligence!
Why did it take so long for me to get a non-paying tenant out of my rental?
I bought this turn-key rental in 2015 in my IRA. I have many other rentals in Colorado that I bought in a more traditional way but this house was sold to me by a friend, or so I thought, for $45k. It was supposed to be rented and managed but that’s another story. The rental was fine until COVID came along and the city started to pay rent for tenants. My tenant stopped paying rent and when the City of Cleveland stopped paying landlords the tenant never paid rent again.
I had a property management company that was mostly worthless and incompetent. I won’t mention their name, actually, I will, Monument Real Estate. I told Monument to evict and months went by with nothing happening. At first, Monument said I could not evict because the property needed to be certified lead-based paint-free which the City of Cleveland requires on all rentals built prior to 1978. However, my property was exempt because it was built in 2005. I told Monument this for months before they understood.
After we got that figured out, Monument said I could not evict because my IRA needed to be registered in Ohio for the Cleveland courts to hear the eviction case. The company that I used said they would not register in Ohio. I talked to multiple lawyers and they all said I was pretty much screwed because an IRA is not a corporation and you can’t register it. This went on for months more and eventually I had some help from commenters on my YouTube videos. They told me to try different lawyers and one told me to try a property management company that had helped them in difficult situations.
After the tenant not paying rent during COVID, the months the property management company argued with me over lead-based paint, and trying to figure out the registering my IRA, it had been close to three years, and the tenant never paid a dime.
How was I able to finally get the tenant out?
While this was happening I asked the property management companies to offer cash for keys. Cash for keys is when you pay someone to leave a house. The tenant never responded to any notes or calls. I switched property management companies and the new one also tried cash for keys with no success. The new property management company did help me get my IRA registered. They told me to register as a corporation with the Secretary of State (SOS) in Ohio. I told them the lawyers said that wouldn’t work but they told me to try anyway.
I tried to register as a corporation and it didn’t work. The SOS said an IRA is not a corporation and can’t be registered as one, but they were very helpful and worked with me to find a solution. Eventually, the SOS helped me to register the IRA name as an entity doing business in Ohio. It took some time but we got it done and with that registration, the courts agreed to hear the case!
At the first hearing, nothing was done except to schedule another hearing. The tenant was given a free attorney by Cleveland to help fight the eviction. My property manager told me we should offer cash for keys in court because the judge will see we are trying and the tenant has to respond. I agreed to offer $2,000. The rent on the property was less than $800.
While all of this was happening the property management company said the tenant was suing them for $35k! I could not believe it until I got a package in the mail from the tenant and they wanted $35,000 from me as well! They said they needed $10,000 for cash for keys to move out and $25,000 for emotional distress from the notes and calls my property management companies made trying to offer cash for keys.
I was not hopeful she would accept the cash for keys in court, but she did! She had to move out in about 30 days and if she did not we could file for an immediate eviction. The tenant moved out and I have my house back.
The YouTube video below goes over the story and shows the house
How could I have avoided this nightmare rental?
I take full blame for this situation as I should have known better. I made a few mistakes:
I trusted someone too much: I trusted someone who said they knew the area and that this was a good deal. None of that was true and if I had had a third party check out the property I would have known never to buy it.
I trusted the property management company given to me: That person also recommended a property management company that stopped doing rentals and then they recommended Monument and I never checked them out myself. I should have done way more due diligence.
I didn’t fire a bad property management company as soon as I knew there were issues: I knew Monument was bad since they messed up my accounting before, and kept making mistakes, not communicating, and were flat-out rude. I was lazy and waited too long to hire a new one.
How to buy out-of-state rentals the right way.
Conclusion
If I were to buy out of my area again, I would do way more due diligence and most likely not use a turn-key company. I would find an agent, and property manager and use them to find a great deal wherever I wanted to invest. I would have a third party checking things out and not trust people as much as I did. I can handle the nightmare this became because my other rentals have done very well but a new investor without other investments could have huge problems in the same situation.
Looking to build wealth with the best income-generating assets? As you set out on the path to financial freedom, understanding the different types of income-generating assets can truly change your life. This is because you can invest in assets that will generate you income, earning you more passive income. Today’s article will introduce you to…
Looking to build wealth with the best income-generating assets?
As you set out on the path to financial freedom, understanding the different types of income-generating assets can truly change your life.
This is because you can invest in assets that will generate you income, earning you more passive income.
Today’s article will introduce you to a range of assets that reliably bring in cash, giving you peace of mind and the freedom to live life on your own terms.
From traditional investments like stocks and bonds to more creative options like peer-to-peer lending or real estate, income-generating assets give you the power to diversify your portfolio and build wealth over time.
Related content:
What are income generating assets?
Before we begin, I want to talk about the basics on income-generating assets, in case you are new to the subject or if you want a background first.
Income-generating assets are investments that, as the name suggests, generate income for you. These are assets that provide you with a steady cash flow, allowing you to earn passive income and build your wealth over time.
Examples include rental real estate and dividend-paying stocks (we will go over 17 different types of income-generating assets below in more detail).
There are several benefits of the best income-generating assets such as:
Passive income: You earn money without actively working, and this can provide financial freedom and the ability to focus on other things in life. You can earn money in your sleep, while on vacation, making dinner, and more.
Diversification: You can diversify your investments so that all of your income is not coming from just one source.
Wealth building: Earning income and generating a steady cash flow can help you build your wealth over time.
Note: Please keep in mind that there is no one-size-fits-all approach when investing in any of these income-producing assets. Everyone is different and while one asset may work great for someone, it may not be the right asset for you. I recommend doing as much research as you can if you are interested in one of the asset investments I talk about below.
Types Of Income Generating Assets
There are many types of income-generating assets. Some may be more traditional such as dividend-paying stocks, and others may be more alternative income-generating assets, such as selling stock photos, and even renting out your driveway.
Today, I will talk about 17 different types of income-generating assets, but this is not a full list of the best income-producing assets. There are many, many more!
The different types of income-generating assets that I will talk about today include:
1. Dividend-paying stocks
One of the best assets to invest in are dividend-paying stocks.
Dividends are simply a payment in cash or stock that public companies distribute to their shareholders.
The amount of a dividend is determined by a company’s board of directors, and they are given as a way to reward those who have stock in their company. Both private and public companies pay dividends, but not all companies pay dividends.
How do dividends work? If you own shares of a dividend-paying stock, then a dividend is paid per share of that stock. So, if you have 10 shares in Company ABC, and they pay $5 in cash dividends each year, then you will get $50 in dividends that year. While dividends can be paid on a monthly, quarterly, or yearly basis, they are most commonly paid out quarterly — so, four times a year. In this example, the $5 in cash dividends the company pays each year will most likely be distributed as $1.25 per quarter for each share of stock.
The most common type of dividends are cash dividends. Shareholders may choose to get this deposited right into their brokerage account. Stock dividends are another common type of dividend. In this case, shareholders get extra shares of stock instead of cash.
Both cash dividends and stock dividends are great income-generating assets that will earn more money for you.
As a shareholder, you can earn income when companies distribute profits to their shareholders. Look for stocks with a history of consistent dividend payouts and a high dividend yield. Keep in mind that dividend stocks are still subject to market fluctuations, and just because a company has paid a dividend in the past does not mean that they always will in the future.
Related content:
2. High-yield savings accounts and CDs
High-yield savings accounts and CDs are a great way to grow your savings, but most people have their money in accounts with low rates. Unfortunately, that means many of you are losing out on some easy money.
Savings accounts at brick-and-mortar banks are known for having really low interest rates. That’s because they have a much higher overhead — paying for the building, paying the tellers to help you in person at the bank, etc.
High-yield savings accounts offer an easy option for earning interest on your cash. Online banks often offer higher interest rates than traditional banks. As of the writing of this blog post, you can easily find high-yield savings accounts that can earn you above 4.00%.
Certificates of Deposit (CDs), another form of income-generating assets, are FDIC insured and provide a guaranteed interest rate over a specific term. Remember that access to your money is limited during the term of the CD. You will agree upon the term before putting your money in the CD. The terms typically vary in length from around 3 months to 5 years.
Money market accounts are also offered by banks and often with a higher yield than other types of savings accounts.
3. Real estate
Real estate is one of the most common income-generating assets that people think of.
Investing in rental properties is a popular way to generate steady cash flow. You can earn rental income from tenants, and properties typically appreciate in value over time.
Location and property management are important factors that can impact your return on investment.
By investing in real estate, you may be investing in residential properties, commercial real estate, short-term rentals, REITs, and more.
Recommended reading: How This Woman In Her 30s Owns 7 Rental Homes
4. Real estate investment trusts (REITs)
An REIT is a company that owns and manages income-producing real estate. They then sell shares to investors like stock.
By investing in REITs, you can make money in the real estate market without actually owning real estate.
So, if you don’t want to be a landlord, then this may be something for you to look into. This makes it much more passive than actually owning real estate and having to manage it.
You can even diversify your income stream with REITs by investing in different property types, such as residential homes, commercial office space, industrial, and retail store properties.
5. Bonds
Bonds are fixed-income investments that are issued by governments and companies. If you own a bond, you receive interest payments from borrowers on a regular basis.
An easy way to explain this is: When you buy a bond, you are giving someone a loan and they are agreeing to pay you back with interest.
Bonds with higher credit ratings are generally a safer investment but may offer lower interest rates.
6. Mutual funds
Mutual funds gather funds from investors to invest in stocks, bonds, or other securities. Basically, the funds are pooled together and there’s a fund manager who chooses the best investments.
Income-generating assets like this have multiple types of mutual funds available for multiple types of investors. Some of these fund types include bond funds, stock funds, balanced funds, and index funds.
Mutual funds typically have higher fees because they have fund managers who are actively trying to beat the market.
With a mutual fund, you get diversification because the fund manager mixes the assets in it.
7. Index funds and exchange-traded funds (ETFs)
ETFs and index funds are popular options for those who are looking to diversify their portfolio of income-generating assets.
This is because index funds and ETFs track a specific market index and invest in a wide range of stocks or other assets, instead of picking and choosing stocks in an attempt to beat the market. This is what makes them different from mutual funds.
They often have lower fees and higher diversification compared to actively managed funds.
8. Annuities
Annuities are long-term investments offered by insurance companies that give you a guaranteed income stream to build wealth. In exchange for a lump-sum payment or periodic contributions (such as monthly or annually), you’ll receive steady payments in the future.
The way it works is you pay premiums into the annuity for a set amount of time. Later, you stop paying premiums, and the annuity starts sending regular payments to you. Some are even set up to pay you back with a lump sum.
Annuities can be fixed or variable. A fixed annuity offers a guaranteed payment amount — which means a predictable income for you. As for a variable annuity, the payment amount does vary, depending on how the market is doing.
9. Websites and blogs
Starting a website can generate income through the money-making assets of advertising, affiliate marketing, or the sale of products and services.
Since I started Making Sense of Cents, I have earned over $5,000,000 from my blog through affiliate marketing, sponsored partnerships, display advertising, and online courses. These income-generating assets make sense for building wealth.
Blogging allows me to travel as much as I want, have a flexible schedule — and I earn a great income doing it.
Now, it’s not entirely passive, but I do earn semi-passive income from my blog.
You can learn how to start a blog in my How To Start a Blog FREE Course.
Here’s a quick outline of what you will learn:
Day 1: Why you should start a blog
Day 2: How to decide what to write about (your blog niche!)
Day 3: How to create your blog (in this lesson, you will learn how to start a blog on WordPress)
Day 4: The different ways to make money with your blog
Day 5: My advice for making passive income with your blog
Day 6: How to get pageviews
Day 7: Other blogging tips to help you see success
Recommended reading: The 25 Most-Asked Blogging Questions To Get You Started Today
10. Royalties and intellectual property
Intellectual property, such as patents, copyrights, and trademarks, can generate income through licensing fees or royalties. This particular option is good for creative professionals, such as authors, musicians, and inventors, who are looking for income-generating assets.
Royalties are a way to earn income from your creative work or intellectual property. By granting others permission to use or distribute your intellectual property, you can receive ongoing payments known as royalties.
Whether you’re a musician, author, inventor, or artist, royalties offer a passive income stream as your creations continue to generate revenue over time.
Royalties can be paid out periodically or as a lump sum on these passive income assets, depending on your agreement with the licensee.
11. Stock photos
If you have a talent for photography, you can monetize your skills by selling stock photos on platforms such as Shutterstock or Adobe Stock. The more high-quality images you upload, the more potential passive income you can generate.
With stock photography, you simply upload photos that you have taken to a platform such as DepositPhotos, turning your pictures into income-generating assets. Then, you will receive a commission whenever someone buys one of your stock photos.
Stock photos are used for all sorts of reasons by websites, companies, blogs, and more. Businesses need stock photos because they are not usually in the business of taking photos of everything that they need. Instead, they can use stock photos to make their content, website, or business more visually appealing.
Some examples of stock photography include pictures of:
Travel, vacations, landmarks, outdoor adventures
Family members, such as parents, children, family gatherings
Food and drink
Cars, boats, RVs
Businesses, pictures of people in meetings, in an office.
Sports, professional events
Animals, such as household pets or wildlife
The photo possibilities are almost endless for this type of income-generating asset.
Recommended reading: 18 Ways You Can Get Paid To Take Pictures
12. Crowdfunding and peer-to-peer lending
Crowdfunding platforms enable you to invest in real estate deals with a smaller amount of money than buying real estate up front, giving you a passive income through rental income or even a property increasing in value.
Peer-to-peer lending platforms allow you to lend money directly to borrowers. Typically you can earn higher returns than traditional savings accounts, though there’s always the risk of a borrower not paying you back.
Both of these types of assets — crowdfunding and peer-to-peer lending — use technology to connect investors with those looking for funding.
13. Renting out storage space
If you own unused land or unused space in your home, renting it out for storage can be a simple way to generate passive income.
You can offer storage solutions for vehicles or boats. If you have a smaller space, then offer it to store personal belongings. You can rent out your driveway, closet, basement, attic, and more. You can even rent out a shelf.
A website where you can list your storage space is Neighbor. You can earn $100 to $400+ each month on this platform. This depends on the demand in your area and the type of income-generating assets you are renting out. And, you can choose who, what, and when — who to rent to, what things are stored, and when it will happen.
You can learn more at Neighbor Review: Make Money Renting Your Storage Space.
14. Short-term rentals
Short-term rentals can be a lucrative income-generating asset if you own properties in popular tourist destinations or business hubs.
Websites like Airbnb provide a platform to rent out your property to travelers for short periods, potentially generating higher returns than traditional long-term leases.
Furnished Finder is another website for short-term rentals. This is a way to connect with travel nurses in need of short-term housing.
Keep in mind that rental income can be affected by local regulations, potential vacancies, or seasonal fluctuations.
15. Car rentals
Car rental platforms like Turo allow you to rent out your car when you’re not using it. Assets that generate cash flow include your own wheels, and that means no significant initial investment besides the cost of the car you already own.
Be mindful of risks such as wear and tear, insurance, and potential damage caused by renters.
It’s an affordable alternative to traditional rental car companies for customers, and it’s a good way to make money if you’re already working from home and don’t need your car, or are a two-car household.
Turo is one of a few different places to rent out your car, turning your vehicle into one of your income-generating assets. Your car is covered by Turo with up to a $1 million insurance policy. You can also pick the dates for when your car is available and set your rates.
Turo says you can earn an average of $706 per month by listing your car on their site.
16. RV rentals
Similarly to car rentals, RV rentals can provide additional income by renting out your recreational vehicle when you’re not using it. Your RV could easily become one of your income-generating assets.
You may be able to earn $100 to $300 a day, or even more, by renting out your RV on RVShare.
If you have an RV that is just sitting there and not being used, then you may be able to earn an income with it by renting it out to others who are interested in RVing. Cash flow-generating assets like RVs are a win-win for both you and the renter who wants to experience life in a recreational vehicle.
You can learn more at How To Make Extra Money By Renting Out Your RV.
17. Vending machines
With a vending machine business, you can generate income by selling a variety of products, from food to fishing supplies, beauty products to baby items, and more.
You may be able to earn $1,000+ a month by running a vending machine business. That’s enough reason to take a closer look at income-producing assets like this.
You can learn more at How To Start A Vending Machine Business – How I Make $7,000 Monthly.
Questions about income generating assets
Here are common questions that you may have about income-generating assets:
How do I start passive income from nothing?
Starting passive income from nothing requires creativity and resourcefulness. You can begin by identifying skills you possess or interests that can be turned into income-generating opportunities.
What are the assets that generate income?
The assets I talked about above include:
Dividend-paying stocks and stock market investing
High-yield savings accounts and CDs
Real estate
Bonds
Mutual funds
Index funds and exchange-traded funds
Annuities
Websites and online businesses
Royalties and intellectual property
Stock photos
Crowdfunding and peer-to-peer lending
Renting out your storage space
Car rentals
RV rentals
Vending machines
How do I start buying income generating assets?
There are traditional investments or more creative options. Do as much research as you can before deciding which option fits you best.
What are good assets to buy?
After deciding if you want to purchase traditional investments or more creative options, choose an asset that you can afford and best fits your lifestyle.
What are the best assets to buy for beginners?
For beginners seeking income-generating assets, you may want to look into:
Dividend-paying stocks for your investment portfolio
Crowdfunded real estate investing: Platforms like Fundrise allow smaller investments with lower risk exposure.
ETFs and index funds: They provide diversification and passive income through dividends.
What is income generating real estate?
Income-generating real estate refers to properties that produce regular rental income, such as apartments, commercial properties, or short-term vacation rentals.
How do I start passive income in real estate?
There are a few ways that you can earn passive income from real estate, including:
Buying a property, such as an apartment building or duplex, and renting it out to tenants
Using real estate crowdfunding platforms
Investing in REITs
How to make passive income with real estate without owning property?
You don’t need to actually own property in order to make money with real estate. Instead, you can earn passive income from real estate by investing in REITs and using real estate crowdfunding platforms.
This is an option for those who want to be diversified with their income-generating assets but don’t want to spend all of their money or time on a single piece of real estate.
How to make $1,000 a day in passive income?
Making $1,000 a day in passive income with assets that produce income will not be easy. If it were easy, then everyone would be doing it, after all.
Making $1,000 a day in passive income may require a large amount of money up front, diversifying into different assets mentioned above, and lots of patience from you because it will take time to make that kind of money.
You may want to start off by focusing on building multiple income streams and reinvesting your profits as you earn them.
What to think about before investing in income producing assets?
There are many different things to think about when it comes to income-generating assets. You want to find the best assets to invest your money in that will also be the best fit for you.
Remember, as I said at the beginning of this article, not everything will be applicable to everyone. Everyone is different! You may prefer to create a stock photo portfolio and hate real estate, whereas someone else may really enjoy being a real estate investor — or it may even be the other way around.
Here are some of my tips if you are interested in income-generating assets:
Do your research and talk to experts —I recommend researching as much as you can on the asset you are interested in. And, if you still have questions, don’t be afraid to talk to an expert.
Diversify — One of the important parts of building a successful income-generating portfolio is finding ways to be diversified.
Think about the risks —When making money, there’s usually some sort of risk. I recommend evaluating the risks and seeing what you are comfortable with.
What are the best books on income generating assets?
Some highly recommended books on income-generating assets include:
The Simple Path to Wealth by JL Collins
The Millionaire Real Estate Investor by Gary Keller
The Little Book of Common Sense Investing by John C. Bogle
Income Generating Assets — Summary
I hope you enjoyed this article on the best income-generating assets. As you learned, there are many different types of assets that you can invest in so that you can earn an income.
The best income-producing assets, if they’re right for you, can truly change your life.
With these assets, you can build wealth through a reliable passive income, giving you peace of mind and freedom to live life on your own terms.
Are you looking to build income-generating assets? What are your favorite ways?
Whether you’re moving out of your parent’s house or leaving the dorm life behind, becoming a first-time apartment renter is a big and exciting step. However, if you don’t know the ins and outs of the rental process, the task can seem overwhelming. Luckily, we at Redfin put together a list of 8 key tips to help first-time renters find their perfect first apartment and make the transition as smooth as possible. Whether you’re renting an apartment in Los Angeles, CA, or in Brooklyn, NY, these tips will be invaluable in your journey to securing the ideal rental space.
1. Your budget needs to cover more than just rent
If you’re a first-time apartment renter, knowing how to budget for your first apartment is crucial. Your monthly rent will, of course, be the most considerable expense you need to account for, but there are other one-time and ongoing fees that you should be able to pay. Let’s take a look at these costs more closely.
Initial, one-time costs
Before moving into your new apartment, you should save enough money to pay for the following upfront costs:
Recurring costs
Once you’ve moved into your first apartment, there are several ongoing expenses you’ll need to cover every month:
Rent
Utilities, such as electricity, garbage, water, sewage, etc.
Internet and phone
Parking
Laundry
As a first-time apartment renter, this might be the first time you’re responsible for these types of expenses. The last thing you want to do is misjudge what you can afford because you forgot to factor in these essential components of your cost of living.
2. Make a list of needs, then prioritize them
Start with your dream apartment – what is your ultimate living situation? While you may not end up with everything on your list, it’s essential to understand what you value in your home. Some common needs for first-time apartment renters are:
Functional kitchen
Balcony, patio, or other private outdoor space
Closet and storage space
Proximity to work, nightlife, dog parks, or other amenities
Natural light and direction of exposure
Air conditioning
Building amenities, such as a gym, rooftop, or business center
Once you have your list, prioritize the items from most to least important. This will help you narrow down your choices and choose between similar properties.
3. Ask a lot of questions during apartment tours
There are some things you just need to know when you’re shopping for apartments. You may direct these questions to your prospective landlord, or you might have to do some research on your own. Here is a list of must-ask questions, but you may choose to add others depending on your needs.
How much is the rent?
Are utilities included? If not, how much do they usually cost?
How much is the security deposit?
How do I pay rent and utilities?
Is there a parking fee?
Is the apartment pet-friendly, and if so, what are the associated fees?
Are any deposits or fees refunded at the end of the lease?
Do I need proof of renters insurance?
What’s the application process, and is there a fee?
How long is the lease term?
How often does rent increase and by how much?
What alterations can I make to my apartment?
How is apartment maintenance dealt with?
Is there a property manager?
Am I responsible for any maintenance?
What amenities are available nearby?
Are there any particular policies I should know about?
These questions are just the beginning. You likely have special needs or preferences that should inspire additional questions. Keep a list of these questions with you when touring, along with a way of recording the answers.
4. Know the rental application requirements
Each apartment will have a different rental process. Generally, your process will include some or all of the following:
Fill out an apartment application
Show proof of income
Complete a credit check
Complete a background check
Provide rental history with the landlord’s contact information or a personal reference
Add a co-signer if you have a low credit score or no credit history
Include an optional cover letter
To show proof of income, you’ll likely need to provide your most recent pay stubs. You can also use an offer letter or letter from your employer if you’re moving for work. Many landlords or property management companies want to see that you have a reliable monthly income appropriate for the rent payment. While it depends on the apartment, there is often an income requirement that the renter needs to make 2 to 3 times the monthly rent amount.
5. Clarify the parking situation
Some rentals come with a designated parking area or parking spot(s). If you plan to live with a roommate and you both have cars, are there enough parking spaces to easily accommodate both of you? When there are not enough parking spaces or tandem parking, roommates will often switch off week to week or find another acceptable compromise. If the apartment complex does have parking spaces, be sure to ask if this comes at an additional cost. Parking fees are becoming increasingly common at rental properties.
On the other hand, many apartments don’t come with parking, especially in bigger cities like New York City or San Francisco. In this case, pay close attention to the street parking. The street parking signs will tell you which days or times of day parking is limited or prohibited (usually for street-sweeping or snow plowing). But you should also note how many parking spaces are free on your street— is there plenty of room or are cars packed bumper to bumper? Streets with cars parked close together usually mean that parking is difficult to find.
6. Know the best time of year to rent an apartment
You can’t always control when you need to move, but if you do have flexibility, choosing the right time of year to rent an apartment could have a large impact. If your main concern is price, you’ll want to look for an apartment during the winter months. Typically, most people move in the summer months (college students moving away from home, etc.), so demand and prices are typically highest during this time and lowest in the winter. Keep in mind that while rent prices may be lower, there might not be a large selection of apartment complexes with availability.
On the other hand, if your ideal apartment is your top priority, then moving during the summer may be a better option. Most renters sign 12-month leases in the summer. Therefore, most leases usually also end around that time. This means the highest number of new apartments are coming on the market, so you’ll have plenty of options to choose from. The main downside here is that rent prices will typically be higher, and you’ll need to act fast before the best apartments are off the market.
7. Thoroughly read and understand the lease agreement
As a first-time apartment renter, reviewing your lease agreement is one of the most important steps to getting your apartment. Though the lease may contain complex language, it will outline the most important agreements you’re making by signing it. Here are a few things you should make a note of:
The length of your lease
The pet policy and any special terms (like additional fees)
Deposit requirements and how your deposit is returned
Sub-letting rules
Utility responsibilities
Maintenance procedures
Liens or claims to your property if you don’t pay rent
When in doubt, having your lease reviewed by a landlord-tenant attorney is a great idea. The attorney will be able to catch any illegal provisions, explain how provisions work, point out unfavorable provisions and their consequences, and suggest changes that provide you with a more favorable lease.
8. Get renters insurance
In many cases, carrying renters insurance may be required by your landlord, especially if you’re a first-time apartment renter. Even if it isn’t, it’s still a good idea to have it – regardless of if you’re a long-time tenant or a first-time apartment renter. A renters insurance policy protects you in three significant ways:
Personal property protection: If someone steals, damages, or destroys your personal belongings, you will receive a payout (minus the deductible).
Personal liability: If someone gets hurt in your home, renters insurance will pay for medical bills and lost wages, depending on the terms of your policy. You may also be covered if you end up in a lawsuit.
Loss of use: If your apartment becomes uninhabitable, loss of use coverage pays for your expenses, up to coverage limits, while you live outside your home.
Always be sure to review your policy carefully. It’s a good idea to create an inventory of your personal belongings so that you both have a record of what you own and ensure your coverage limits are high enough to protect you in the event of a total loss. If you are unsure about any part of your insurance policy, speak with your agent.
A final note on renting your first apartment
Searching and finding a perfect apartment rental requires some diligence, patience, and preparation. By following these tips, you can avoid possible pitfalls and make your apartment hunting process as seamless as possible, especially if you’re a first-time apartment renter.
As technology continues to advance across the board, it should come as no surprise that it is playing a powerful role in shaping the property management industry and its future progression. The rental market is getting more and more competitive – for both property managers and tenants – and many property owners are using amenities as a way to stand out from the crowd. According to the National Apartment Association, the top amenity today’s renters are demanding revolves around connectivity: renters prefer anything that can make their lives easier through technology.
Tenants want to stay connected to the digital world from the comfort of their homes, whether on a mobile device or desktop, for work or entertainment. One study shows that Americans spend over 10 hours each day interacting with digital devices, and nearly 40% of young adults (ages 18-29) access the internet almost constantly. In the past, property managers may have offered internet services as an additional perk to entice renters in competitive markets, but now connectivity may be seen as a necessity to keep up. By including internet services as an amenity for tenants at your rental property, you can increase your property’s desirability and decrease vacancy time.
Including Internet Services: The Good
Offering free internet as an amenity isn’t an industry standard, so going this route can set you apart from your competitors. Rental property owners can provide high-speed internet in the common areas of their multifamily properties, or include personal access in each unit – either way, you can easily market reliable and fast broadband internet as a way to attract tenants. In addition to attracting tenants, offering a service that other properties don’t include can also keep tenants around longer as they will have to consider taking on an additional expense if they move.
If you’re already offering cable TV services at your property, internet should be an easy and relatively inexpensive add-on. You may even be able to negotiate a deal with your internet service provider if you’re planning on offering internet services to a large quantity of units within one property. Some property managers choose to include internet costs as part of a tenant’s rent at a discounted rate, while others charge a set fee on top of the monthly rent. Think about it this way: if your multifamily property has even 10 units, and each unit pays approximately $100 each month for internet services, your building is paying $12,000 a year for Internet. If you absorb this cost yourself and can secure it at a discounted rate, charging your tenants directly for internet services can actually turn out to be a profitable business.
Including Internet Services: The Questionable
Providing your tenants with internet services can come with some risk. One concern is that tenants may look to their landlord for IT support. The last thing you need as a property manager is tenants reaching out about connectivity or technology concerns. To combat this issue, clearly provide your tenants with information on whom they should contact with any questions or concerns.
Security can be another issue that property managers face when it comes to offering internet services to their tenants. Tenants want their personal networks to be secure and protect their personal information, while property managers want to ensure their network is only used for legal activity. To protect yourself, you should include specific language in your lease about the terms of use, prohibiting any illegal activity. This is also something you should address when choosing an internet service provider.
At the end of the day, deciding to provide internet services for your tenants at your rental properties will depend heavily on the supply and demand in your rental market. If your vacancy rate is low and you don’t experience much competition when it comes to finding tenants, you may not need this additional service to attract and retain tenants. If you live in a market where supply and demand are both relatively high, you might consider providing internet to set yourself apart. Most tenants want access to the internet in their homes, and including internet services in the monthly rent is usually one of the features tenants appreciate the most.