Income generating assets are the types of investments which generate steady revenue. You can receive the money on a monthly, quarterly, or semi-annual basis. Nevertheless, most of these assets offer you the best of both worlds, i.e., the money is paid to your bank each month, while the asset appreciates in value.
Investing in such assets is indeed an appealing concept. Most people who invest in income-producing assets do it so that the revenue they get covers their expenses, and when the time is right, they can quit their jobs and start enjoying life. An income generating property will break the financial chains that hold most people down.
Why do you need an investment property?
- With time, they will make enough passive income that will exceed your expenses to allow you to become financially free.
- The revenue being generated by the asset can be reinvested into more assets for even more financial success.
- Income generating assets are always going up in value.
When it comes to real estate, there are different types of income-generating assets to choose from. Typically, however, there are two main forms, and they include long-term rentals and short-term rentals. Familiarizing yourself with each will allow you to make the choice that suits your goals best.
Long-term Rental Properties
These are the most common type of revenue generating assets in the real estate world. They are relatively easy to manage while producing some of the highest revenues. These are investment properties that are rented out in exchange for monthly rent, which is your rental income. As the investor, you will get to determine how much rent you will charge for your property. This, of course, also depends on the real estate market around you.
However, your long-term rental needs to be occupied by renters for it to generate profits. As such, to avoid having a vacant property, while ensuring a high tenancy rate, you must invest your time into managing the property to take care of your tenants. Even though most people consider income generating assets as passive income investments, they need your full attention to ensure that you keep the tenants satisfied and happy.
However, it might not be feasible for you to do so due to other responsibilities, and this is why you should consider a property management firm. This is a company that will manage the property for you to ensure that the rental remains in good shape while attracting tenants to ensure that there are no vacant periods.
Short-term Rental Properties
The difference between these and long-term rentals is the period the asset is rented out. A short-term rental is typically rented out for a period ranging anywhere between one night and a few weeks. The most popular type of these is vacation rentals.
What Are Vacation Home Rentals?
These are income generating assets that are categorized as low-risk rental properties. They are categorized this way because the investor is usually buying this asset with the intention of having a holiday or vacation home.
However, these properties can be rented out for small periods, usually less than one month at a time, and typically bring in higher returns than long-term rentals. And although these properties generally require more hands-on management, more and more investors are considering short-term rentals as better opportunities, and here is why.
1. The Vacation Rental Market is Growing
Technavio conducted a study where the analysis predicted that the global vacation rental market would experience an annual growth rate of 7% between 2017 and 2021, where it will be worth $194 billion.
Today, travelers prefer to stay in short-term rentals over conventional hotels due to the numerous advantages that a vacation home has to offer such as affordability, flexibility, and freedom.
2. They Can Generate More Revenue Than Long-Term Rentals
Short-term rentals generally charge higher rents than long-term rentals. Moreover, when appropriately managed, they can benefit from recurring revenue. Most vacationers who enjoy their time at the place are likely to come back or recommend the place to their friends. This is why good management is extremely vital in short-term rentals.
3. They are a Great Way of Getting into Real Estate
If real estate is not part of your investment portfolio, a short-term rental is an excellent way of getting into this area. It helps to diversify your assets, which should insulate your investments from market volatility. Moreover, the revenue from these rentals should help cover the mortgage on the property. This makes short-term rentals the ideal way for real estate beginners to get into the business.
4. They Come in All Tastes and Budgets
A vacation rental does not imply that you must buy a beachfront mansion. Short-term vacation home rentals come in different forms, such as studio apartments or even mountain chalets. Some homeowners have even gone ahead to take advantage of their large spaces to build dwellings on their property that serve as short-term rentals. The possibilities are limitless.
5. Tax Benefits
The new federal tax law allows owners of properties which are operated as businesses to deduct mortgage interest on these assets, in addition to other business expenses that are related to the property. If you run your property as a business, you can deduct up to 20% of the net rental revenue from your income taxes.
6. An abundance of Marketplaces to Find Renters
Today, there are short-term rental online marketplaces such as HomeAway, VRBO, and Airbnb, which give you a platform to advertise or book vacation rentals. Founded in 2008, Airbnb is the largest among the bunch and continuing to grow. At the moment, it has over 4 million worldwide listings, which is more than the top three biggest hotel chains combined. More and more travelers are visiting these marketplaces to look for short-term rental vacation homes in their preferred destinations.
7. You, Will, Have Your Own Vacation Home
Even if your primary goal for investing in vacation homes is for short-term rentals, you will still get to enjoy the property – without having to pay anyone for your accommodations. This is enjoying the best of both worlds, as you will be mixing business with pleasure. Apart from saving you these expenses, spending time there will allow you to know what you can do to the property to make it even more appealing to your renters so that it enjoys a constant supply of tenants.
Moreover, instead of planning where to go for vacation, you will have a reliable destination that you can go to at a moment’s notice.
Additionally, having a second property offers you flexibility. If, for instance, your primary residence needs to undergo some renovations, you will have somewhere to house your family while this takes place. Let’s not even add the limitless possibilities such as hosting events such as weddings or reunions.
Income generating property is ideal for anyone looking to quit their 9 to 5 someday and have their money work for them. However, before jumping into the deep end of real estate investments, you could start by considering either long-term rentals or short-term rentals. Short-term rentals such as vacation-rentals are low-risk and are ideal for anyone new to the industry. However, the success of these assets depends on good management as that is what determines whether you will have tenants or not.
While you can manage the property yourself, it is time-consuming and requires you to be there all the time. Therefore, hiring a property management company to manage your investment property is a good way of ensuring your asset continues to be profitable.
Casago is a property management firm that has extensive knowledge managing vacation rentals. By allowing us to look after your property, we shall create budgets, advertise the property, qualify tenants, collect the rent, comply with real estate board and local landlord-tenant laws, and maintain your property.