Income From Residential Investment Properties

by : Bruce Swedal

The current real estate market has created an increase in the number of people that are purchasing residential real estate properties for investment purposes. If they are purchased and managed properly, these properties can provide a source of income or a chance to build equity over time.

The difference between commercial properties and residential properties is that someone will be living in the residential home. That will mean that you are the landlord and as such need to keep the property in a good and livable condition. As maintenance issues come up you will need to address them promptly.

That alone can deter some from taking on the landlord responsibility, but there are options for those that just don't want to manage the property. Property management companies will rent out and ensure maintenance on your investment when a vacancy or problem presents itself.

Maintaining an additional property can sometimes seem like a hassle or big financial responsibility. Take a moment to think about the benefits of keeping a rental home in good repair. If your home is run down in disrepair no one will want to live there. That means no rental income to cover that mortgage payment. Another reason for keeping the maintenance on the home up to date is that when you go to sell the property a well maintained home will return a better profit from appreciation.

With a rental home you need to be prepared for the commitment and be dedicated to your responsibilities as owner and landlord. It will take an investment of your time and in some cases personal capital to have a property that generates revenue. In the best case scenario the rental income will return a profit, but should minimally cover the homes maintenance.

When it comes to rental properties there are a couple types of income. Those are appreciation and yield. They appreciation you realize when you sell the home for more than you paid for it. The yield is your annual rental income. These concepts usually work inversely. That means that a property that has higher yield will generally have a smaller appreciation and vice-versa. The best situation would be a balanced approach to achieving moderation with each.

When you are considering a residential investment property the first step in the process is getting comfortable with the landlord responsibilities and the next step is obtaining financing. Ideally you will have assets available for a down payment, but if not there are programs available for that scenario also.

Financing a residential purchase has differences from a commercial real estate loan. With a residential property you are not usually expecting a profit on the scale of a commercial real estate deal. The residential mortgage terms are typically longer term which will allow you more payment, term and interest options. Many investors that already own a home will secure a home equity loan that helps them with the down payment on the investment property.

Residential property investors can turn a good profit on properties. It really depends on the time, capital and effort that you put into it. The residential investor that manages these aspects of the investment well will see the chances for success increase.