How to Make Money with Rental Properties

It’s widely believed that the only people who can make money in real estate are traditional investors—people who have a lot of money to spare and/or a lot of experience to get an edge in the marketplace.

But with new developments and strategies emerging in the real estate industry in recent years, the old school of thought has gone out the window. In order to successfully make money on rental properties, you no longer have to fit into the traditional real estate “investor” box. Today, more and more beginners are playing their hand in the real estate investment game—and winning big.

What is Passive Rental Income?

Passive rental income refers to the earnings generated from rental properties with minimal ongoing effort. Unlike active income, where you trade time and labor for money, passive income allows you to earn money while investing relatively little time in managing the property.

This can include monthly rental payments, appreciation in property value, and tax benefits. The goal is to create a steady stream of income that requires minimal hands-on involvement, enabling you to enjoy financial freedom and more time for other pursuits.

Are Rental Properties a Good Way to Make Money?

Rental properties can be a highly effective way to make money, offering several advantages:

1. Steady Income Stream: Rental properties provide regular monthly income from tenants, which can cover mortgage payments, maintenance costs, and other expenses while generating profit.
2. Appreciation: Over time, real estate values generally increase, which can lead to significant profits when you sell the property.
3. Tax Benefits: Property owners can take advantage of various tax deductions, including mortgage interest, property taxes, depreciation, and maintenance costs.
4. Leverage: Real estate investments often require a down payment, allowing you to leverage a relatively small amount of money to control a more valuable asset.
5. Hedge Against Inflation: Rental income and property values tend to increase with inflation, preserving your investment's purchasing power.

It's important to recognize the challenges, such as property management, tenant issues, and market fluctuations. Before making any investments, it helps to know how to make money with rental properties. With careful planning and management, rental properties can be a lucrative investment.

How to Make Money with Rental Properties: 10 Steps to Turning a Profit 

Making money with rental properties involves several strategic steps. Here’s an overview of each to help you get started:

1. Conduct Market Research

Before investing, thoroughly research the local real estate market. Identify areas with high rental demand, appreciating property values, and favorable economic conditions. Look for neighborhoods with strong job growth, good schools, low crime rates, and amenities that attract renters. Use online tools, consult with real estate agents, and analyze market reports to gather comprehensive data.

2. Set Clear Investment Goals

Define your investment objectives clearly. Decide whether you’re looking for long-term capital appreciation, steady rental income, or a mix of both. Your goals will influence your property selection, financing strategy, and management approach. Establishing clear goals will also help you measure success and make informed decisions.

3. Create a Financial Plan

Develop a detailed financial plan outlining your budget, financing options, and projected expenses. Calculate the costs involved in purchasing, renovating, and maintaining the property. Include mortgage payments, property taxes, insurance, repairs, and property management fees. A solid financial plan provides you with the necessary resources to sustain your investment and achieve your income goals.

4. Choose the Right Property

Selecting the right property helps to maximize returns. Consider factors like location, condition, potential rental income, and appreciation prospects. Opt for properties that require minimal repairs but offer good rental yields. Evaluate different property types, such as single-family homes, multi-family units, or condos, based on your investment strategy and market research.

5. Make Necessary Improvements

Enhance the property’s appeal and rental value by making necessary improvements. Focus on cost-effective upgrades that provide the best return on investment, such as modernizing kitchens and bathrooms, improving curb appeal, and keeping the property in line with safety standards. Well-maintained properties attract high-quality tenants and command higher rents.

6. Set Competitive Rental Rates

Determine competitive rental rates by researching comparable properties in the area. Setting the right rent price helps to attract tenants quickly and keeps your property occupied. Consider factors like location, property condition, amenities, and current market demand. Competitive pricing balances maximizing income and minimizing vacancy periods.

7. Market Your Property

Effective marketing enables property owners to attract potential tenants. Utilize online listing platforms, social media, and local advertising to showcase your property. High-quality photos, detailed descriptions, and highlighting unique features will make your property stand out. Promptly respond to inquiries and schedule viewings to secure tenants quickly.

8. Screen Tenants Carefully

Implement a thorough tenant screening process to select reliable tenants. Check credit scores, rental history, employment status, and references. A robust screening process minimizes the risk of rent defaults, property damage, and tenant disputes. Consider using tenant screening services or working with a property management company for professional assistance.

9. Maintain the Property Efficiently

Regular maintenance is key to preserving the property’s value and tenant satisfaction. Conduct routine inspections, address repair requests promptly, and make sure the property complies with safety regulations. Efficient property maintenance reduces costly repairs, extends the property's lifespan, and encourages long-term tenant retention.

10. Find the Best Property Management Software for You

Investing in property management software can streamline your rental operations. Look for software that offers features like rent collection, maintenance tracking, tenant communication, and financial reporting. The right property management software saves time, improves organization, and enhances your ability to manage multiple properties efficiently.

5 Tips for Investing in Real Estate

Knowing the steps to take in order to start turning a profit on your rental property is a great start, but your success will ultimately be determined by your mindset and how you find and rely on the right expertise when challenges emerge.

Here are some additional tips to help you find your footing and stay resilient over time: 

Let go of the fear of not being an expert

So many people never get started in the rental business because they think they need to know everything about real estate and investing before they buy their first property.

But here’s the thing: anyone can be an investor, and a successful one to boot. You don’t have to be an expert and know it all before you start. You just need a plan, some persistence and the willingness to learn as you go.

Research different investment strategies and the different ways you might make money in real estate investment, like flipping houses or purchasing rental properties. Figure out which one makes the most sense for where you’re at (personally, professionally and financially), and put together a plan for how to make it work for you.

You want to educate yourself, but you also need to realize that it’s okay to not have all the answers. In fact, trying to absorb too much information about real estate investment can backfire and give you “analysis paralysis”—when you’re so overwhelmed with information that you go into information overload and are completely unable to make a move.

Obviously, you want to make informed decisions, but you can only learn so much in a book or on the internet. Eventually, you’re going to have to take action. Which brings us to our next point…

Find a mentor

The quickest way to success in real estate investment is to find someone who’s done exactly what you want to do, and then have them show you how to do it. Working with a mentor will save you an immeasurable amount of time, frustration and money.

Attend networking events to connect with successful local investors. Let them know you’re new to the game and ask if they have any insights they wish they’d known when they were getting started. Follow up and ask if you can take them out for coffee to pick their brain. Most investors enjoy sharing their expertise and are open to mentoring newer players. The key is to be strategic with your questions—no one has time to walk you through their entire business model step by step, so really hone in on the areas you need help with and focus on those when asking for guidance.

Explore all of your options

There are so many ways to make money in real estate, and if you only explore or consider one option, you’re selling yourself short. When you’re getting started in real estate, make sure you explore all the options out there before deciding which one is right for you. That being said….

Start small

Unless you’re independently wealthy or the lucky recipient of a large trust fund, you’re probably going to want to start small while you figure out the real estate investment game. Quitting your day job and investing your life savings into a multi-unit apartment building is a risky bet for anyone, but especially for a beginner. Starting small takes the pressure off and allows you to get a working understanding of property investment before making the leap into larger—and potentially riskier—commitments.

Start pursuing small real estate investment projects, and as you learn how to make money with rental properties. As you start having small successes, start investing more. To truly find success in real estate investment, you’ll ideally want to grow your portfolio as you grow your knowledge.

The most important step in becoming successful in real estate investment is the first step: getting started. No matter who you are or where you are in life, it is possible to build a successful real estate investment portfolio. Follow these tips, and with a little patience, courage and tenacity, you’ll be well on your way to a successful investment career.

Hire a property management company

Hiring a property management company can be a game-changer for new landlords, offering numerous benefits that simplify the rental process and maximize returns. Here’s why you should consider this option and what to look for in a property management company.

Benefits of Hiring a Property Management Company

1. Time Savings: Managing a rental property involves a significant time commitment, from handling tenant inquiries and maintenance requests to guaranteeing timely rent collection and addressing legal issues. A property management company takes on these responsibilities, freeing up your time to focus on other investments or personal activities.
2. Expertise and Experience: Property management companies have the experience and knowledge to navigate the complexities of property management. They understand local rental laws, market trends, and best practices, keeping your property in compliance with regulations and operating efficiently.
3. Tenant Screening and Retention: Professional property managers implement thorough tenant screening processes, selecting reliable tenants who pay rent on time and take care of the property. They also focus on tenant retention, reducing vacancy rates and turnover costs.
4. Efficient Maintenance and Repairs: Property management companies have established relationships with contractors and service providers, enabling timely and cost-effective maintenance and repairs. Regular inspections and preventive maintenance help maintain the property’s value and avoid costly repairs.
5. Financial Management: A property management company handles all financial aspects, including rent collection, budgeting, and financial reporting. They provide detailed monthly statements, making it easy to track your income and expenses and keeping you on top of your financial goals.

What to Look for in a Property Management Company

• Reputation and Reviews: Research the company’s reputation through online reviews, testimonials, and references. A company with a strong track record of satisfied clients is more likely to provide reliable and effective services.
• Services Offered: Check that the company offers comprehensive services that meet your needs, from tenant screening and rent collection to maintenance and legal compliance.
• Fees and Contracts: Understand the company’s fee structure and contract terms. Look for transparent pricing with no hidden fees and a contract that clearly outlines the services provided and responsibilities of both parties.
• Communication and Reporting: Effective communication is a core element of rental property ownership. Choose a company that provides regular updates, detailed financial reports, and is responsive to your inquiries and concerns.

In summary, hiring a property management company can enhance your rental property experience, offering expertise, time savings, and efficient management. This decision allows you to enjoy the benefits of rental income without the day-to-day hassles, making it a smart move for new landlords looking to streamline their operations and maximize their investment returns.

Interested in finding a property management company to discuss your real estate investing plans with? Get started today!