Investing in real estate has various potential benefits over other investment types like stocks. It is stable and can allow you to earn a passive income while enjoying high property appreciation rates.
However, real estate investing comes with its fair share of risks and challenges. For one, the upfront cost is typically high, which can be discouraging especially to newbie investors.
Also, real estate investing is usually prone to other factors, such as market fluctuations and rising interest rates. That said, rental properties remain a good investment even with rising interest rates.
In today’s guide, we’ll give you solid reasons why you should consider real estate as part of your portfolio.
Rental Properties as Long-Term Investments
Rental properties serve as an appealing investment choice due to their inherent nature as long-lasting assets. Unlike fluctuating investments such as stocks or bonds, real estate typically appreciates over time, offering you protection against economic instabilities.
As the value of rental properties tends to rise over time, you can steadily build equity and wealth. A substantial benefit of rental properties as long-term assets is their ability to generate a dependable source of passive income.
Instead of sporadic returns associated with some investments, rental properties yield a consistent monthly income. This reliable cash flow can help you cover operational costs and mortgage payments. Plus, can offer you the financial stability and predictability needed to maximize your ROI.
Handling the Challenges of Increasing Interest Rates
As a savvy landlord, you need to know how to manage rent increases. This is especially true when dealing with rising interest rates. It’s vital to strike a balance that covers your growing expenses while being considerate of your tenants.
The following are some steps to help you efficiently handle rising interest rates:
Make Gradual Rent Adjustments
Introduce minor and regular rent increments instead of sudden drastic jumps. This proactive approach can help you stay ahead of inflation and ease your running costs.
Do Market Research
Conduct a comprehensive analysis of local pricing trends to make informed decisions about rent changes. This will ensure your properties stay appealing and hold their competitive edge.
Engage in Transparent Communication
Always be candid with your tenants about the reasons behind rent increases, such as burgeoning costs or necessary improvements. This openness and good communication can enhance a positive landlord-tenant relationship.
Reasons Why You Should Invest in Real Estate Even with Rising Interest Rates
Real Estate is a Long-Term Investment
When you invest in a rental property, you’re involving yourself in a long-term investment strategy. That’s why you shouldn’t get too worried about short-term losses occasioned by rising interest rates.
Generally, property values appreciate over time, outpacing inflation rates and exemplifying financial growth. So, don’t sweat the small dips, keep your head straight, and aim for the ultimate prize.
Multiple Sources of Income
With a rental property investment, you can generate multiple income streams. While there is a potential monthly income, you may also be able to make money through property appreciation.
Every year, the actual property value will probably continue to increase. According to Zillow, the average home value appreciates 3.6% year-on-year and goes to pending in about 25 years.
So, suppose your property has an estimated value of $350,000 today. With an annual growth rate of 3.6%, it’d be valued at $710,000 in 20 years. That would be more than 2X the initial property value!
These multiple income streams can help you offset the cost of the rising interest rates, as well as other operational expenses.
Rents Increase Over Time
As a landlord, you may be able to hike the rent amount every year to compensate for certain factors. Examples of such factors include inflation, rental demand, or the need to upgrade the premises.
This is another factor that makes property investments resilient against increasing interest rates. Just make sure to abide by the relevant local laws when making the rent adjustments.
For starters, the increment must abide by retaliatory and discriminatory laws. You must not hinge the increment based on a protected class or as a retaliatory tactic against a tenant. For best results, conduct a comparative market analysis to determine what other landlords are charging for similar units.
How Landlords Can Maximize their ROI from Property Investments
Increasing the rent amount isn’t the only way you may be able to maximize your rental income. You may also be able to do so through the following strategies:
1. Upgrade the Rental Property
Think of your tenant as the customer. The better the service and value you give them, the more you can charge them.
Luckily for you, rental upgrades don’t have to cost you an arm and a leg. You can get high ROI on cost-effective upgrades such as updated appliances, a fresh coat of paint, or revamped outdoor spaces.
2. Choose the Right Location.
Location is everything in real estate investing. The better the location, the higher the rental demand is going to be.
Focus on locations that have growing population forecasts, great amenities, good security, and job growth, among others.
3. Lower Your Expenses.
Another surefire way of increasing your rental’s profitability is by minimizing your expenses. The following are some tips to get you started.
- Install energy-efficient appliances.
- Engage in preventative maintenance.
- Hire an experienced property manager to help you with occupancy rates.
Conclusion
As you can see, rental properties are still a good investment even with rising interest rates. Just make sure to have a good strategy, such as investing in the right location, charging the right rent, and hiring a good property manager, among others.
If you need help managing your property, consider hiring Blue Door Realty. We offer professional property management services to property owners in the Greater Albuquerque, NM area.
Contact us today to learn more about our services!