Whether you’re an experienced investor or just starting your wealth-building journey, diversifying your portfolio with real estate can be a great idea. Even during uncertain times in the stock market, people need homes to live in and, usually, offices or commercial space for shops and restaurants. 

But real estate isn’t a monolith. There are so many different types of properties, and virtually endless markets and ways to invest. Here’s what you need to know about how to diversify your portfolio with real estate.

What is diversification?

In the simplest terms, diversification refers to spreading your money out in different markets, across different asset types, and with various investment strategies. You don’t want all your investing power in one stock or even in one sector of exchange-traded funds. Your overall investment portfolio can and should eventually contain investments in stocks, mutual funds or ETFs, real estate (commercial and residential), precious metals such as gold, and maybe even alternative assets like art or antiques. Basically, don’t put all your eggs in one basket.

Take the most successful entrepreneurs for example. They rarely put all of their money and time into one business, but instead, spread it over multiple businesses, joint ventures, or passive income avenues. These entrepreneurs are not at risk of financial ruin if one of their investments falls on tough times or fails completely. This is a great example of diversification for business purposes.

What are the benefits of diversification? 

There are some significant benefits to diversifying your investment portfolio. When you “spread the wealth” as an investor, you spread risk between multiple types of investments. If one investment does poorly, the idea is that it will be offset by the performance of other uncorrelated investments.

Diversification also ensures your journey toward wealth won’t be so volatile. You’ll avoid the roller coaster experience that someone without a diverse portfolio feels, such as those invested entirely in individual stocks since the stock market can steeply rise or fall weekly.

Why should you diversify your portfolio with real estate investments?

It’s always important to diversify your portfolio, and to diversify each aspect of it as well. Even if you have a high risk tolerance in pursuit of short-term gains, you wouldn’t want to put all your money into the same private equity firm or mutual fund. If something were to happen to one of them, then all your money would be at risk.

Maintaining a real estate investment portfolio is widely considered to be a conservative investment strategy, as property generally appreciates in value over time, even when the stock market falters. 

There are so many ways to break in — from flipping houses or holding multifamily properties for rental income, to commercial real estate investing, REITs, or real estate investment trusts, you can find ways to break in at virtually any price point. Here are some of the biggest reasons you should consider diversifying your portfolio with real estate. 

Lower your overall investment risk 

One of the best parts about real estate investment as a personal investment is that prices are independent of the activity on Wall Street. That is why using real estate to diversify your portfolio can lower your overall risk. While the stock market might decline in a month, the real estate market might continue to see increasing prices. This helps reduce the risk in an investor’s portfolio.

Balance out volatile investments 

Another reason to use real estate to diversify your portfolio is that home prices aren’t as volatile as the stock market. When you search for real estate investments, you are going to come across median prices, or prices that are common in certain areas or neighborhoods. While some neighborhoods or rental properties may exhibit more risk, their prices will not change drastically next weekend or even next month. 

Hedge against inflation 

The real estate market is an excellent hedge against inflation. Property values often tend to stay on an upward curve over time because the population is ever-increasing and people always need a place to live. If you’re hesitant because you remember The Great Recession of 2008, you should know that residential home values were back above their ‘07 value in less than 10 years – reganing value much faster and with more stable growth than the stock market.

Generate income with minimal effort 

Real estate investing provides you the opportunity for recurring income without any additional time or effort on your part, depending on how you invest. 

Owning residential rental properties or prime vacation rentals, for example, provides you with regular cash flow you can rely on. And many property management companies will take on all the day-to-day tasks —  such as cleaning, maintenance, finding renters, etc.— so the investment requires relatively little time on your part.

Additionally, property generally appreciates over time, increasing in value as costs rise, keeping pace with or exceeding inflation. Home prices have grown an average of 17.5% in the U.S. over the last yearalone.

How to diversify your portfolio with real estate

The way you balance your asset allocation depends on your time horizon and your risk tolerance. If you’re close to retirement, your time horizon is on the shorter side and your tolerance for risk should be relatively low, so you’d likely have a higher allocation in fixed income assets and securities and real estate, which aren’t as volatile as the stock market. If you’re fresh out of college and just getting started building your portfolio, you have a longer time horizon and the ability to take on more risk, so you’ll likely have a higher allocation towards stocks and real estate with little exposure to bonds. Here’s what you need to know about diversifying your portfolio.

Diversify by asset type 

A balanced portfolio contains a range of different types of assets, such as cash-like assets (hard currencies or savings in money market-style accounts), property, stocks, and other kinds of investments. It’s also best to diversify within each of these categories. 

For example, you may not want to put all of your investment money for the real estate portion of your portfolio into a single real estate investment group or a single type of real estate, such as commercial properties. Instead, you can protect yourself against fluctuations across the market by spreading out your investment between commercial property, residential rental properties, land, and so on..

Diversify by asset class 

An asset class is a group of investments that are similar and subject to the same laws, such as commercial properties, single-family homes, and multi-family rental properties.

Diversifying your portfolio by asset class means building a portfolio with different types of assets that are unaffected by one another, so that if one asset class starts to decline, the others will remain afloat. 

For example, it may be wise to invest in both vacation rentals and multi-family homes. That way, if people stop traveling—as they did during the early days of the pandemic—not all of your investments will stop generating passive income at once. Even when people aren’t traveling on vacation, rental homes are still needed for full-time residents. 

Likewise, real estate is just part of this equation. It’s smart to have investments across a range of asset classes such as stocks, bonds, real estate, and cash-like money market savings accounts, which can cushion your portfolio against a crash in any one of these areas.

Diversify further across real estate markets 

If the aim is a diversified overall portfolio, individual investors should buy shares in multiple properties, and in multiple markets. This is like double-diversification – you diversify into real estate and also diversify across multiple properties across the US. By doing so, you reduce your risk profile significantly, especially if there’s an issue with any singular property or area. 

Within the investment world, diversification across asset classes, geographical markets, and asset types allows you to protect against the downside without significantly impacting your upside potential.

You can invest in fractional shares of real estate properties in many cities across the United States to your portfolio by investing through a crowdfunding platform like Vantage horizon. Vantage lets you buy multiple shares of different rental properties without getting involved in the hassle of owning or managing a property yourself.

Diversify by strategy 

There are many strategies you can use in real estate investing to generate income while hedging your bets against market changes. Some are short-term strategies—like buying a house in an up-and-coming market, holding for a price increase, and selling as soon as the market takes off—and others rely on long-term appreciation. 

For example, in some housing markets that are expected to experience significant growth in the next decade—such as in neighborhoods with long-term prospects for public transit that connects them more directly with major cities—you may plan to buy and hold properties to make rental income in the short-term and profit off of significant appreciation in the long-term. Another strategy could be to flip houses—buying them in order to renovate them and resell them quickly for a profit in a hot market.

Mistakes to avoid when diversifying your portfolio with real estate 

Even though real estate is a fairly conservative investment in terms of risk, new investors often lose money when they move too quickly or don’t do enough research before closing a deal. Here are a few common mistakes to avoid.

Don’t forget to check your bias

It’s always important to remember that having a diversified portfolio is the best way to protect your net worth against market volatility. Even if your family or friends are experienced real estate investors who’ve made all their money from one type of real estate—say, single-family homes providing steady rental income—you’ll still be better off diversifying your own portfolio. 

Make sure your portfolio is actually diverse

There are many different types of properties you can own, from commercial real estate like office buildings to vacation rentals and hotels to alternative investments like houseboat moorings or land you can lease out. A truly diverse portfolio would include different types of properties in different markets. If you have real estate spread across several cities and states, a downturn in one neighborhood or city where you’re invested wouldn’t tank your whole portfolio. But if all your real estate is in one place and suddenly people are moving out in droves—the way people left New York en masse during the pandemic—your portfolio could be in trouble.

Don’t invest more than you can afford to lose

While investing in a real estate portfolio is generally a fairly safe hedge against market volatility, it’s impossible to predict the future. And even if your assets remain strong during a downturn, property is still an illiquid asset, which means turning that commercial property or multifamily home into cash could take some time. Never invest so much money that you’d be at risk if you couldn’t immediately sell the assets.

Always have an exit strategy

While some real estate investments work more like stock, where you can buy and sell shares without a physical stake in a property, many others don’t. That means it’s important to know how you’re going to get out—what your sale options are or where you could look for additional investors—before you end up in an emergency situation with too much liquidity tied up.

Don’t overestimate your abilities—hire a professional when you need to

Do lots of people make significant money from flipping houses or managing residential properties on their own? Sure. But if you’re just starting out and you’ve never been a property manager, it’s easy to overlook all the work it requires to turn an investment opportunity into serious cash flow.

Always do enough research—and hire a lawyer or inspector when needed

Again, one of the biggest mistakes you can make is to overestimate your own knowledge and skills. This applies to decision-making, too. If you’re not sure you’re making a good investment, you can contact a lawyer, inspector, or other expert to go over that contract, triple-check that potentially faulty wiring, or explain how a new town ordinance or public transit route could impact a property’s value over time.

How to diversify with Vantage Homes 

There are two ways to diversify with Vantage horizon. Both are extremely easy and beneficial to new and experienced investors. 

Diversify with real estate 

The first way you can diversify with Vantage Horizon is to invest in real estate if you do not already have any real estate present in your portfolio. We have a very simple process that includes a team of experts to make the investment process go smoothly. You can invest anywhere from $5,000 to $1,000,000 in any home or homes listed on our site.

Diversify across location 

Another way you can diversify with Vantage horizon is to invest across multiple properties and markets. Consider the difference in how a home in Detroit, MI may perform in comparison to a home in San Francisco, CA. Each housing market has its own cycles. 

Rather than attempting to predict each market’s cycle, you have the ease and opportunity to diversify across many markets. We have many properties available located in various cities, rural and urban, across the country. This allows you to easily find multiple, beautiful homes and spread your investment capital across the US instead of in just one or two rental properties. 

Though this type of diversification has historically been limited to wealthy investors able to afford multiple properties, with Vantage horizon, you can easily invest in multiple locations because of our fractional investing model. 

Fractional Ownership in Real Estate: Is it Worth it?

Real estate continues to be the preferred form of investment to build wealth, especially with rising inflation and the volatility of the stock market. However, according to a Pew Research Center survey,seven out of ten Americans think young adults today have a harder time becoming homeowners and saving for their future than their parents’ generation, especially as house prices have grown markedly faster than incomes in the last decade. 

This has given rise to shared ownership and crowdfunding models in the real estate market, key among them fractional ownership in real estate. 

What is fractional ownership in real estate? 

Fractional ownership in real estate is a way of buying a portion or percentage of a property. The asset – in this case, a real estate property – is divided up into several parts or fractions, making it available for purchase to a larger number of co-owners with fractional interest. 

With fractional real estate investing, the cost of the property is split between multiple shareholders, and so is the profit. As the value of the property increases, so does the rental income and equity. The property is usually maintained by a third-party management company that looks after the repairs and maintenance, and is paid proportionally by the co-owners of the property.

Fractional ownership as a real estate investment vs. vacation property

Not everyone who invests in real estate as a fractional owner does so for the investment. For some people, fractional ownership is a fantastic way to own a second home or a high-end vacation property without buying it outright. 

Fractional ownership as a real estate investment

Fractional ownership of a rental property is often a long-term investment that creates short-term rental income as well as long-term equity. Platforms such as Arrived Homes allow non-accredited investors to purchase shares of individual rental properties in some of the highest growth US rental markets. 

It should be noted that fractional ownership is not the same as investing in a publicly-traded REIT (Real Estate Investment Trust), which is traded on the stock exchange. This said, fractional ownership can sometimes be structured as a non-trading REIT, which can have greater tax benefits for investors. Rental properties on Arrived are all structured as non-trading REITS, meaning there are no limitations on who (accredited and non-accredited alike) can invest. To maintain this structure.

Fractional ownership of a vacation property

Fractional ownership of a vacation property is often more about usage than investment. When you buy a portion of a luxury resort vacation home, for instance, you get access to it for a certain number of weeks each year, allowing you to enjoy and use a property that you may have otherwise been out of reach. 

Fractional owners can use their allotted time themselves or pass it on to family members, friends, or colleagues. Property managers for fractional ownership vacation homes often oversee properties in multiple locations and countries, giving owners the option to trade in time in their own property for a property elsewhere. Ownership interests in fractional properties can be passed on to heirs. 

Fractional ownership of a vacation home vs. timeshare 

Fractional ownership of vacation homes often gets confused with timeshare ownership. There are, however, key differences to keep in mind as you think about investing in fractional real estate. 

• Ownership: When you buy fractional ownership in a vacation home, private residence club, or destination club, you receive a deed for your portion of the equity. You are, in effect, co-owning a property with several other buyers. With timeshare ownership, you’re paying for usage, that is, a certain amount of time that you can spend on the property each year.
• Time: Timeshares are often owned by 26 or 52 people, thus giving each owner a week or two at the vacation home. There are fewer buyers with fractional real estate investments, which allows each owner more amount of time at the property.
• Resale: You cannot sell a timeshare because when you buy a timeshare, you are not buying the property, but access to time in the property. This lack of ownership means that you cannot resell a timeshare. However, you can resell your fractional ownership of a property, because you’ve bought a portion of that property and, like with any other real estate bought in full, you have the right to sell, gift, inherit, or place it in a trust.

Is fractional ownership in real estate worth it?

There are several advantages to fractional ownership in real estate. Besides the low barrier to entry and the ability to leverage expert knowledge through a third-party management team, you can also spread out your investments and diversify your portfolio, something that is much harder to do with whole ownership. Here are some aspects of fractional ownership in real estate to consider when making your decision.

When you want equity in a home

When you buy a timeshare, you’re buying a portion of the time spent in the property. With fractional ownership, you’re purchasing equity. This may translate into time spent at the property, in the case of a vacation home, for instance, but primarily it means you’re making a real estate investment that has the potential to give you a rental income as well as a share of the profits as it increases in value. 

With fractional ownership properties, a property operator or management platform will create a Limited Liability Company (LLC) or Limited Liability Partnership (LLP) to own the property. The percentage of shares you own in the LLC or LLP will determine how much of the property you own and, therefore, the proportion of rights you have. 

If you’ve bought 25% fractional ownership in a home that’s rented out, for instance, you will be entitled to 25% of the rent. And as the value of the home appreciates, you can resell your share for a profit, just like with a traditional real estate investment. 

When you can’t otherwise afford or justify a second home

For many home buyers, the purchase of a second home is difficult to justify, especially if it’s something they won’t be using frequently. Financially, too, it can be out of reach for many without co-owners. The investment potential of a second home or a vacation rental, however, is hard to ignore. 

Fractional ownership allows for both investment growth potential and infrequent usage. By sharing rights of property ownership with co-owners, you’re able to use the property for a portion of the time and not pay for a vacation home that’s sitting empty most of the time. And it gives you access to a home that might have been difficult to afford if you were buying the entire property. 

When you want to spend more than 1-2 weeks at your vacation property 

One of the biggest similarities between timeshares and fractional ownership is co-ownership – that is, there are multiple owners for each unit. One of the biggest differences is the number of those co-owners. 

With timeshares, there are often 26 or 52 owners with a stake in the vacation property, giving them each a week or two weeks in the year in which to use their time. In the fractional ownership model, the buyers are far fewer, often between six and 12. This means that as a fractional owner, you typically have more usage rights and longer periods of occupancy in the property multiple times a year. This often works out to between four and eight weeks.

When you want to invest in real estate but don’t have the capital

If you’re looking for real estate or rental income outside of vacation home ownership, but don’t have the cash to cover the entire purchase price, fractional ownership in real estate can be the perfect investment method. 

Platforms like Vantage horizon  Homes will let you buy fractional ownership in homes in your desired location and get you started for between $5,000 and $1,000,000 As a co-owner of the property, say a condominium, not only do you get a share of the rental income in proportion to your ownership, but build wealth as the value of the home appreciates. 

One of the biggest benefits of fractional real estate investing is how quick and simple it is to get started building your portfolio without spending years saving up for a down payment, having perfect credit, or learning about the market. Your investment – however small – starts reaping rewards straight away, enabling you to not only climb the property ladder, but make gains from tenancy immediately.

When you want more control over your property

Unlike traditional real estate investments, fractional real estate ownership does not require you to deal with the hassle of maintenance and upkeep of a property (most of the time). A management team will usually take care of all those necessary details, including reports, marketing, and billing. 

While this is also true for timeshares, there is one key difference when it comes to fractional ownership: owners of timeshares have little to no control over how a property is maintained. It’s maintained accordinfg to the standards of the management company. 

This is not so with a fractional property. How much of a say you have will be determined by the proportion of your ownership in the property, but you are paying a property management team to handle your investment, and therefore have a say in how they act on the co-owners’ behalf. 

Easily invest in rental properties

It is easy to confuse timeshares with fractional real estate investing, but there are significant differences between the two ownership arrangements that are important to consider. If you’re looking to build your portfolio and create a passive source of revenue, while also building equity in real estate investments, then fractional ownership is the way to go. 

While residential real estate has been the best long-run investment in modern history, operational headaches and larger upfront financial commitments prevent many people from participating. At Vantage Horizon , our mission is to empower the world to build wealth through modern real estate investing on their own terms.

Now, you can buy shares of properites, earn rental income, and build equity through home appreciation, all while we handle the rest. Browse through available properties to start investing in real estate today. 

Buying an investment property can be one of your wisest financial decisions. Over time, property owners can realize significant appreciation and steady cash flow through passive income if they choose the right properties.

But how do you find investment properties for sale? When done correctly, finding and choosing the right property type for you can be time-consuming. But it doesn’t have to be. Here are some places you can start exploring today to get into the real estate market.

What you need to know before searching for investment properties

Spending hours scrolling through listings websites and dreaming about properties can be fun. But if you’re looking to buy, you can do so more efficiently if you know what you’re looking for. We’ve put together a guide to real estate investing that can help you clarify your short- and long-term goals. 

Here are some other things to consider before you set off on your search so you can make the process as efficient as possible.

Calculate how much of an investment you want to make

Be realistic: how much can you afford to put down for a down payment, and how much can you afford to pay for a mortgage? Don’t forget to factor property taxes, closing costs, and homeowners insurance into that total cost. Sites like Zillow can help prospective homebuyers estimate mortgage payments and additional monthly and annual expenses based on the expected purchase price, market value, estimated interest rates from lenders, and historical data about each property, such as property taxes and homeowners association (HOA) fees.

Decide what kind of real estate investment property you want to buy

Before you look for a property, you should know what you’re looking for and what your goal is. Do you want to enter the housing rental market, or are you more interested in developing land for commercial use? Are you looking for a long-term investment or a relatively quick cash return, as you might find from flipping houses? 

Think about the best real estate investment for you, so you can search listings more effectively and weed out properties that won’t work for you.

Know where you want to buy

Before you start getting too deep into the search process, research prospective property markets that interest you and understand what you want to get out of the investment. Maybe you’re a first-time investor, and you’ve only just started thinking about this because you’ve seen a great deal right in your neighborhood and are in a housing market you trust to continue growing. While that first “for sale” sign might not be the perfect option for you, you can use that as a starting point to research home prices and historical property values in your area and decide whether it’s the right place for you to invest. 

Or, maybe you’ve been reading a lot in the news about a specific market elsewhere in the country, and you’ve decided you want to invest there. You can then narrow your search criteria to that town and review options throughout the area, including options from crowdfunding platforms like Vantage Horizon, which enable you to realize gains from an investment property without having to front all the money for a down payment by yourself.

Make a plan to get the highest return on investment—and time

Knowing how you want to use a property can help you sift through options and rule out properties that won’t achieve those goals. For example, suppose you’re looking to capitalize on travel trends to get regular cash flow from a vacation rental. In that case, your timeline will look quite different if you’re buying a recently renovated house versus one that needs a lot of renovations. Many cities and towns have restrictions on how short-term rental properties can be used, so if you know you want to put a house on Airbnb, you can research those laws and see whether licensing fees and lodging taxes will eat up a significant portion of your gains. 

If you’re considering buying a single-family house,  consider the potential monthly rental income and whether it would balance out your mortgage. If you’re aiming for a multifamily home, think about whether you would want to live there yourself. Generally, you will have much lower taxes if you’re living in an owner-occupied multifamily house than if you live elsewhere and rent out every single unit. Also, know whether you’ll want to manage tenants yourself or if you’ll want to engage a property management company to find renters and deal with maintenance issues. While such companies can take a lot of the hassle out of owning a rental property, they can also cost a lot of money. 

Types of Places to Search for Investment Properties

Regardless of where you live, you can generally invest in real estate properties virtually anywhere. And lucky for you, there are scores of ways for prospective buyers like you to find a good investment even without first traveling to the place you’re looking to invest. 

Once you’ve made a budget, crafted a plan for the type of property you want to buy, and gained clarity on how you expect to realize ROI, you can start seriously looking for properties that make sense for your grand plans. 

Here’s where you can start your search for real estate investment properties.

Real estate investment crowdfunding platforms

One of the easiest ways to find investment properties with little administrative work on your part is to invest through a crowdfunding platform. Arrived, for example, collects investments of all sizes from investors to fund properties with high potential for long-term rental income and appreciation. The properties listed are all available for immediate investment, and you can invest with virtually any dollar amount you’re comfortable with, whether that’s a few hundred or tens of thousands. 

Fractional ownership enables you to find and invest in properties expected to start appreciating and generating rental income immediately. It takes all the admin work out of it for individual investors. Arrived’s team handles all necessary repairs, maintenance, and tenant relations—all you have to do is make your investment.

Auctions

When homeowners default on their mortgages and the property enters foreclosure, the lender generally sells the property at auction to the highest bidder. Legally, the lender is not allowed to profit from the sale, so any proceeds after the bank recoup its costs and cover any liens will go back to the homeowner.

Generally speaking, you will not have access to the property before buying it, and you may not even be able to see good pictures of the interior of the home. So, while such sales can often look like outstanding deals, there may be a lot of hidden work that needs to go into the house. 

You can find real estate agents through local property dealers, online listings that will connect you with an agent for viewings (such as by scheduling a viewing through Zillow), or through word of mouth. Ask around if you know anyone who has recently bought or sold an investment property to see if they would recommend the person they worked with.

Classified ads and ‘For Sale‘ signs

We all know Craigslist as the place to find new roommates and list stuff we don’t want. To be sure, there’s a lot of junk on there, but you might also find a gem of a listing for a home for sale by owner. You might find similar listings in local newspapers or town or city forums. 

You can also get lucky by driving through the neighborhood where you’re interested in investing. Particularly if someone is trying to sell a home on their own without the help of a real estate professional, they’re likely to post up signs in front of their house and potentially even around the neighborhood, such as on bulletin boards at cafes or in community centers.

Wholesalers

Wholesalers work with property owners to find buyers for their homes. They do this by contracting rights to purchase the property and then profiting by selling the house for a higher purchase price to the end user.

Earlier Last year, a Miami-based brokerage offered a new and exciting twist to a property sale. The buyer of the property, they said, would get a unique bonus as part of the purchase: a digital twin of the physical property. Inhouse Commercial partnered with Metaverse Group to develop a virtual version of the building, which went on sale as a package for $25 million. If all goes to plan, Inhouse’s deal will be the first commercial metaverse combo deal. 

However, Inhouse isn’t the only player in the digital real estate business. Sierra Development, a luxury home builder in Orlando, put a Miami mansion and its replica in the metaverse for sale for over eight figures and is hoping to do the same for the residential market.

Digital real estate has steadily been gaining momentum and traction recently, with several brands and commercial real estate companies looking into the opportunities this new format offers. For some, like Inhouse Commercial, the expectation is that investors who buy digital real estate will use it as a virtual meeting place for remote employees, while others are looking at it from a pure investment perspective. 

With real estate sales on the four major metaverse platforms reaching $501 million in 2021, is digital real estate something you should add to your real estate portfolio? Let’s take a closer look.

Buying and selling digital real estate

Digital real estate is a property that exists in online spaces, such as metaverses or virtual worlds. Also referred to as virtual real estate, digital real estate is a digital place for people to gather virtually, much like you would in a video game or online learning experience. Digital properties can take many forms, and examples of digital real estate include parcels of land, buildings, and avatars. Like with real-life spaces, the virtual property can rise or fall in price depending on demand, popularity, and location. 

Typically, a parcel of land in the metaverse is structured as a non-fungible token (NFT), which is stored in your crypto wallet and tracked on the blockchain. The NFT is a digital ledger that demonstrates proof of ownership of your digital land. There are several virtual platforms where real estate can be purchased, and theoretically, the amount of available land in each virtual world is finite. Much like in the real world, each land token has coordinates, and combining two or more adjacent parcels results in an estate. It’s helpful to think of the digital real estate market as programmable spaces in virtual reality platforms where property owners can overlay experiences or objects on land and create events. Visitors can socialize, attend meetings, attend virtual concerts, and so much more. 

Online real estate is typically bought and sold in the following ways: 

Metaverse land and property

This is the most common form of investing in digital real estate. Buyers can purchase land with a metaverse mortgage or through cryptocurrency like Ethereum. The land is bought in each metaverse’s primary marketplace; some transact exclusively in tokens specific to that platform or through secondary marketplaces such as OpenSea. There are currently 622,436 parcels of land in the ten largest metaverses, and $1.9 billion worth of land has been sold across the world’s top ten virtual platforms. 

Real estate NFTs

Another way real estate is being bought and sold digitally is through the use of real estate NFTs; real-world land and properties are being sold just as they always have, with the slight change that instead of dollars, the exchange is made through cryptocurrency. The contract is executed in the form of NFTs. Propy is a real estate management platform that allows brokers and property sellers to keep the entire transaction on the platform. They were responsible for the world’s first real estate NFT that sold for $650,000.

Digital versions of physical real estate

While still new, companies such as Parcl offer you the chance to buy and sell digital versions of real estate that track the actual price of real estate assets in specific locations. Like a tracker fund, you’d be investing in real estate assets in particular locations and earning based on the appreciation of value. However, this is all done digitally, through blockchain technology, which means there are no realtors and no commissions.

Online digital assets

While modern definitions of digital real estate investing almost always refer to transactions on the blockchain or assets in the metaverse, digital real estate can also refer to “online properties” such as websites, newsletters, and social media accounts that can grow in value over time and create passive income for their owners. Affiliate marketing through Amazon, selling ad space, digital products, apps, and e-commerce stores have traditionally been ways to generate income from these assets. It’s also increasingly common to sell domain names or get buyers for an existing online digital marketing business or a WordPress blog through platforms such as Flippa. Search engine optimization or SEO can make an online startup successful. 

How digital real estate investing works

If you’re looking to get started in digital real estate investing, here are a few things you should know: 

Platforms

There are currently a few leading platforms for digital real estate investing in the metaverse, the most popular of which include:

1. The Sandbox: This is one of the most popular and user-friendly of the current platforms. The platform is built on the Ethereum blockchain, and their in-game economy is powered by their token SAND and the crypto coin Ethereum. 
2. Decentraland: The development of this platform started in 2016 and was opened to the public in February 2020. Like Sandbox, Decentraland is built on the Ethereum blockchain and allows users to build gaming events and create and sell NFTs. This is considered the original metaverse project, and billions of dollars worth of virtual land have been sold on the platform. The native tokens are MANA and LAND.
3. Axie Infinity: Axie Infinity is one of the most successful play-to-earn games in Web3. 97% of NFT holders had three or more Axies in their possession, with the NFT collection surpassing $4 billion in sales volume. The native currency is AXS. This platform holds the record for the record-breaking sale of one parcel at $2.5 million.

Currency

To purchase land in the metaverse, you’ll need to get hold of some cryptocurrencies. Popular choices include:

1. Ethereum
2. SAND, the token connected with the metaverse platform The Sandbox
3. MANA, connected to Decentraland

Transaction

Purchases of land, properties, and assets in the metaverse are either made directly through the platforms themselves or secondary platforms such as Opensea and Non-Fungible, allowing sellers to list properties, set their prices, and connect with interested buyers. The sales and ownership transactions are recorded through NFT transfers. 

Start your real estate investing journey

Whether it’s physical or virtual, at Vantage, our mission is to give all investors, regardless of their experience level, the opportunity to take advantage of real estate investing. Our fractional real estate model takes the best from the physical and virtual worlds while giving you access to the hottest markets and prime locations in the real world. Earn the passive rental income without the hassle of being a landlord and with far less volatility than either digital real estate or the stock market. Look through our available properties  to get started.

Buying a rental property is a great way to generate passive income and diversify your investment portfolio. It may sound simple, but there’s much to consider before investing in a rental property. Here’s a quick guide to help get started.

Consider the Property’s Location

“Location is the most important factor in real estate,” according to Up homes because it greatly impacts a home’s long-term value. Why is location the most vital aspect to consider when purchasing a rental property? People love living near where they work and play, including your prospective renters. The location of your rental property will determine its desirability and demand in the market.

Here are three critical factors of an excellent rental property location:

• Population growth: It’s simple. A growing population leads to increasing demand for housing. When demand outweighs supply, it causes home values to go up and rent to increase. Savvy real estate investors look for markets where population growth forecasts are high, but housing is still relatively affordable. The reason? More significant potential to earn a good return on investment in the long run.
• Rental demand: When evaluating a potential investment property, it must be in an area with a strong rental market. What’s a strong rental market? Well, a third (34.5%) of Americans rent their own homes. A good rule of thumb is to look for properties in markets where more than a third of households are occupied by renters.
• Economic growth: A real estate market with a strong economy provides jobs and stability to the area’s residents. It’s also more likely to be a destination for internal migration, which helps fuel population growth – this, in turn, helps lay the foundation for an excellent real estate investment.

Assess the Property’s Income Potential

The second most crucial factor to consider when buying a rental property is the property’s income potential. Income potential is simply the likelihood that the property will generate income for you.

According to Investopedia, a quick way to assess a property’s potential rental income is to determine if it passes the 1% rule. It’s a quick real estate trick that helps determine whether a property is priced appropriately for the area’s rental market. For a property to pass, the monthly rent you can charge must be equal to or more than 1% of the purchase price. Let’s look at two “potential” properties below to see how the 1% rule works.

• Rental Property 1
• This three-bedroom, two-bathroom, single-family home is in a great location and priced at $175,000. Using the 1% rule, you should be able to charge at least $1,750 per month for rent. The average rent for similar houses in the area is $2,150 per month.
• Rental Property 2
• This two-bedroom, one-bathroom condo is in the heart of downtown and is priced at $250,000. Using the 1% rule, you should be able to charge at least $2,500 per month. The average rent in the area is $2,250.

In the example above, Rental Property 1 passes the 1% rule and would make a better potential investment. It allows you to charge more than 1% of the home’s purchase price for rent while remaining competitive in the market.

Finance the Rental Property

There are many ways to finance your investment property. Some options are:

• Traditional loan: A conventional loan or mortgage typically requires a 20% down payment; however, most lenders require a 30% down payment for investment properties. The lender will also use your credit score and history to determine your eligibility and interest rate. They’ll also review your income and assets to ensure you can make the minimum monthly payments. Traditional loans can be costly for real estate investors who don’t have the capital to put towards a down payment.
• Hard money loans: Unlike traditional loans, hard money loans that are secured by your personal assets, hard money loans are secured by the property. They’re a type of short-term loan that often comes with very high interest rates. As a result, hard money loans are typically used by property flippers who plan to renovate and resell the property in a short period.
• Personal loan: A personal loan is a type of unsecured loan. That means they aren’t tied to any assets you may have. As a result, large personal loans, like those needed to buy a rental property, can be difficult for individual real estate investors. Personal loans also have higher interest rates than traditional loans or mortgages.
• Crowdfunding: Crowdfunding is a way to raise small amounts of money from large numbers of people to pay for a project. At Vantage, we use crowdfunding and fractional real estate investing to help real estate investors enter the rental market without the hassle. That’s right! You don’t have to deal with real estate agents, lenders, or a mortgage. You also don’t have to deal with finding renters or monthly maintenance. Learn more about how vantage horizon works.

Lease the Rental Property

An empty rental property doesn’t generate any income for real estate investors. And a property that’s rented out without an air-tight lease poses a risk for property owners. Here’s some advice to help.

• Know your target tenant. The golden rule of marketing is “know your audience.” In real estate, it’s “know your tenants.” It helps ensure you’re marketing your property to the right people. For example, if you’re renting out a studio apartment near a university that’s $500 per month, it makes sense to market to students. Likewise, renting a single-family home in the suburbs with good schools, you’ll want to target families.
• List your property. Once you’ve identified your target tenant, it’s time to list your property. There are dozens of listing platforms out there. We recommend selecting ones that are more likely to be used by your target tenants.
• Make it legal. A leasing agreement is essential because it protects your property and helps ensure you generate consistent rental income. We recommend working with a lawyer to draft your leasing agreement. However, it should include the following: monthly rent and when it’s due, whether you allow pets, the upkeep required by tenants, and what happens if the lease is terminated early.

Manage the Rental Property

Property management is a rental property’s oversight, maintenance, and upkeep. It’s imperative because it helps protect your investment and ensure it’s operating at its full potential.

Property management includes:

• Listing the property
• Screening potential tenants
• Signing and renewing leases
• Collecting rent
• Maintenance and landscaping
• Budgeting for property maintenance
• Adhering to landlord-tenant laws

There are a couple of ways real estate investors can handle property management. First, they may choose to handle all of it themselves. Second, for a fee, they may hire a property management company to take it for them.

Feeling Overwhelmed?

Let us help. At Vantage, our goal is to make investing in real estate easy and hassle-free. We’ve created a radical way for investors to buy shares of properties, earn rental income, and build equity through home appreciation without dealing with real estate agents, lenders, or property management companie

The average U.S. household earns $84,352 a year and spends almost 35% of that on housing, according to the Consumer Expenditure Survey published by the U.S. Bureau of Labor Statistics. But what if you could generate enough extra income from your home to make your mortgage payment each month and put the excess cash towards other expenses, retirement, or financial independence goals?

With house hacking, you can. A relatively new concept that borrows from old-school traditions, house hacking is a way of using an existing property to reduce living expenses, build wealth, and get started in property management.

House hacking explained

House hacking is a way of generating rental income from your home, either through buying a multifamily property and renting out the units you don’t live in or renting out bedrooms, garages, attics, etc., in a house you already own. The goal of house hacking is to cover part or all of your housing costs, and if done very well, it could lead to purchasing more properties.

For home buyers without deep pockets, house hacking can work as an excellent real estate investing strategy that gets you started without any additional investment. Traditionally, being a house hacker has meant buying a multi-unit property—such as a two-unit duplex or a three-unit triplex— and living in one unit while renting out the others. Depending on the property, the monthly rent from the rental units can be enough for most, if not all, of the monthly mortgage payment. Essentially, house hacking allows you to live for free or almost free while also building an asset that will appreciate and give you consistent cash flow in the long term. 

3 primary benefits of house hacking

If free accommodation, passive income, and an increase in property value aren’t incentives enough, here are a few more benefits of house hacking that might make it worth looking into: 

1. Cheaper financing options

Financing a property as an owner-occupied primary residence has far more benefits than financing an investment property. For one, the down payments are much smaller (3-5% instead of 10-20%), and you can often get better loan fees and interest rates. Fannie Mae and Freddie Mac offer mortgage products for 2- to 4- unit primary residences with affordable down payments and low interest rates. This means lower monthly mortgage payments, higher cash flow, and an easier route to the housing market.

2. Easy start in real estate investing

House hacking is a quick and straightforward way to rent out units without investing in additional real estate. Not only can you minimize the amount of capital you have tied up in rental properties, but house hacking also allows people who don’t have much money to take advantage of the perks of real estate investing. Building equity in your home is faster since you have renters paying part or all of the mortgage. It’s also easy to learn how to become an effective landlord with your renters living right next door. 

3. Tax savings

As a homeowner, you get several tax advantages  from property ownership. However, when you purchase a home as a real estate investor or turn your property into multiple rental units, several additional tax breaks and benefits become available. Landlords can deduct expenses incurred to maintain the property. These include repairs, ongoing maintenance, and depreciation. You can also deduct the cost of owning and marketing it, which includes property taxes, mortgage interest, property management fees, property insurance, and the cost of finding renters. 

How to successfully hack a house

There are several ways to successfully hack homeownership that work for your finances, your life, and your family. You will, however, need to consider zoning laws and HOA (Homeowner Association) rules before proceeding. Here are a few house hacking strategies to consider: 

• If you own a multifamily home, you can turn one unit into your primary residence while renting out the rest.
• Convert a bedroom in a single-family home into a self-sufficient suite by adding a bathroom and kitchenette.
• Remodel a spare bedroom, a basement, or a garage and set it up as a short-term rental or vacation rental through Airbnb and Vrbo.
• Sharing your home with roommates can be an effective way to hack your house while saving up for a separate unit or remodeling. It does mean you’re sharing your living space with someone, but it can be an easy way to save up cash quickly.
• Build an accessory dwelling unit (ADU), which are separate living units that come with a home. Think basement apartments or detached garages. 

Buying a house to hack

As mentioned above, financing a primary residence is often much cheaper than financing an exclusively rental property. The interest rates are often low and down payments are affordable at 5% or less. Standard options for borrowers looking to finance or refinance a property include:

• Conventional loan: A conventional loan, offered by lenders such as banks or credit unions, is rarely guaranteed or insured by the federal government. The down payments can be as low as 3% of the purchase price, and interest rates, while low, can vary depending on your credit rating and history.
• Conforming loan: A conforming loan is a mortgage that meets the dollar limits set by the Federal Housing Finance Agency (FHFA) and the funding criteria of Freddie Mac and Fannie Mae. A conforming loan can be a good option if you have good credit, owing to its low interest rates. 
• FHA loan: These are loans backed by the Federal Housing Administration. They’re typically more flexible about credit score requirements than most other types of loans. 
• VA loan: For veterans, active-duty military members, and surviving spouses, VA loans can be a fantastic option. They don’t require a down payment or mortgage insurance.  

Start your real estate investing journey

Personal finance experts believe real estate to be one of the fastest and most reliable ways to build long-term wealth. House hacking can be an incredibly profitable way to use an asset you own to eliminate housing expenses and get started in real estate investing without having to purchase a rental property.

If you don’t own a property to house hack, however, don’t fret. Investing with Vantage Horizon allows you to take advantage of all the benefits of real estate investing and house hacking without owning anything upfront. Through our fractional real estate model, experienced and first-time investors can invest in exclusive properties that generate rental income.

Thinking of investing in a rental property but not sure what’s the best investment? Let us help. We’ve broken down the most common types of rental properties to help you decide.

The pros and cons of different types of rental properties 

1. Single-family homes

A single-family home is a dwelling that does not share walls or land with another dwelling and has its own entrance and exit. It’s what most of us picture when we think of a traditional house. Single-family homes typically attract renters with families who are more established in their careers.

The most significant benefit of investing in a single-family rental is its relative affordability compared to other types of residential properties. As a result, they offer a way for many first-time real estate investors to enter the rental market. Another benefit is the possibility of turning it into a short-term vacation rental, especially if it’s in a desirable location.

The downsides of single-family homes are ensuring occupancy and property management. Rental properties only earn income when they’re occupied. Since single-family homes consist of just one rental unit, they won’t generate any income if renters do not occupy them. Another downside, as with all rental properties, is managing the property.

2. Multi-family homes

A multi-family home, or multi-family house, is a single building divided into multiple housing units. Multi-family homes contain between two and four rental units. They typically appeal to younger renters in the early stages of their careers.

Common types of multi-family homes:

• Duplex

A duplex is a house or building divided into two separate living units. Floorplans vary from duplex to duplex. Sometimes the units are side-by-side. Sometimes they’re stacked on top of each other. The common element, however, is that the units share a wall.

• Triplex

A triplex is a house or building divided into three separate rental units. As with duplexes, the floor plan of a duplex can vary. However, the units in a triplex usually share one or two walls.

• Fourplex

A fourplex is a house or building divided into four separate units. The rental units may be side-by-side or stacked on top of one another.

• Condominium

Condominiums, or condos, may be a single building or building complex that contains any number of individually owned apartments. They differ from apartment buildings because the units are typically owned by individuals rather than one person or business. An important thing to note about condos is that many have homeowner’s associations (HOA) that enforce rules and collect HOA fees.

Condos, like single-family homes, in ideal locations also make great vacation homes.

• Townhouse

A townhouse, or townhome, is a multi-family house most like a single-family house. The owner of a townhouse owns the structure and the property it sits on. However, townhouses are not free-standing structures. They share at least one common wall with another unit which is why they are considered multi-family properties.

The benefits of a multi-family home include convenience, cash flow, and tax deductions. Unlike a single-family home, investors who own a multi-family home can choose to live in one of their rental units. This makes it very convenient to manage the property. The rental income generated from the other units can help offset the cost of the mortgage and maintenance expenses. On top of that, multi-family homes offer property owners many tax benefits. Owners can write off any money spent on repairs or maintenance. They may even be able to prorate part or all their mortgage interest payments.

The downsides of a multi-family home revolve around the cost of purchasing and maintaining them. This is especially true for a duplex, triplex, or fourplex, where a real estate investor typically buys the entire building. As a result, they require more money upfront to cover a down payment and property taxes. Condos and townhouses are typically more affordable because they’re purchased as individual units, like a single-family home. All types of multi-family properties can be expensive to maintain. The reason? They’re shared structures. A problem in one unit, like mold, can quickly spread to the other units. A good property management company can help you stay on top of issues, but they come with a price tag.

3. Commercial properties

Commercial property is any property used for business activities. It’s a broad definition that covers everything from office and industrial spaces to retail and apartment buildings. Since this article is for people interested in residential real estate, we’re going to explore the two types of apartment buildings you can invest in as well as workforce housing.

• Low-rise apartment complex

Low-rise apartments are usually 3 to 4 stories high with 50 to 400 rental units. They are sometimes referred to as “garden apartments.” Low-rise apartment complexes typically don’t have elevators. Depending on the real estate market, they may or may not have parking available for tenants.

• High-rise apartment building

A high-rise apartment building is usually over seven stories high and contains over 100 rental units. They are typically found in cities and offer residents the convenience of being close to everything they need. High-rise apartments also have elevators for tenants to easily access their units and shared spaces.

• Workforce housing

The Urban Land Institute defines workforce housing as housing that’s affordable to households earning 60-120% of an area’s median income. It’s affordable housing for middle-income workers and is usually located in urban areas. Workforce housing is a way to help people who earn too much to qualify for traditional housing subsidies but not enough to purchase their own homes. It’s great for residents and investors. Workforce housing qualifies for tax credits other types of commercial real estate don’t get.

According to Investopedia, commercial properties have always been sound investments because of their higher market value. As a result, they have the potential to yield the most significant returns.

The downsides of commercial properties include cost and property management. Higher market value also means higher housing prices. Due to their size and location, commercial properties come with higher price tags, property taxes, insurance premiums, and maintenance costs. They can also be challenging to manage because of the number of tenants and their needs. There are several property management companies out there, but they come with hefty price tags.

4. Vacation homes

A vacation or short-term rental is any furnished property rented temporarily to tourists or vacationers. Vacation rentals can be a lucrative investment for real estate investors. However, as with any investment, they come with some risk.

There are many benefits to investing in a short-term vacation rental. They include higher potential income, personal use of the property, tax benefits, and the ability to withstand recessions.

The downsides of investing in a vacation home are all tied to managing the property. Vacation rentals come with high tenant turnover and inconsistent income between peak and off seasons. Vacation homeowners are also responsible for all utilities, maintenance, and property cleaning between tenants. Managing a vacation rental can be a bit of a hassle. That’s why we’ve recently expanded into the vacation rental market. We want our members to unlock the wealth-building potential of vacation rental properties without the headache or hassle.

Ready to start investing in rental houses?

Let us help. Our platform lets you buy shares of rental properties, including vacation rentals Browse our available properties today to start investing in real estate today.

The market value of a home is always a top concern for anyone involved in a real estate transaction. Buyers want the most bang for their buck, and homeowners want to earn top dollar for their properties. But determining the value of a home isn’t exactly a straightforward process. There are many factors to consider.

11 factors that influence home prices

Here’s a look at some of the most important factors influencing home prices.

1. Location, location, location

There’s a reason “Location, location, location!” is a popular saying in the real estate industry. And here’s why. A home can easily be renovated but can’t be easily moved. That’s why there’s more competition for properties in “good” locations. But what makes a location desirable? Below are a few factors.

• Proximity to resources and infrastructure. These include shopping centers, major highways, recreational activities, entertainment, public transportation, and utilities. A home that has easy access to all the things we need to live life can command a steeper price than one that’s miles away.
• Access to a top-tier school district. The National Association of Realtors reports that a quarter (26%) of homebuyers consider the quality of public schools when looking for a home. Why? Private schools are expensive. As a result, this increases the demand for homes in top-tier school districts which drives home values. Home values in top-rated schools are roughly 50% higher than the national median.
• State of the local job market. People want to live where there are employment opportunities. Housing markets with solid job markets like Denver can command a higher price than markets with fewer opportunities like Detroit.

Those are just a few factors that determine the value of a location. However, it’s important to note that cities, towns, and suburbs are constantly changing. Areas that were once “bad” can become “good” in just a few years.

Here’s how.

Let’s say a well-known employer opens an office or warehouse in a “bad” location. Their presence will draw developers to that location, who will build up the resources and infrastructure to support it. Savvy real estate investors see this as an opportunity to buy while the homes are still affordable in that location.

2. Neighbourhood

In residential real estate, there are four main types of neighborhoods. They are urban, suburban, historic, and rural. They each have their pros and cons, but all are valued on similar factors. They are:

• Accessibility. This is directly related to location, and it’s pretty simple. Does the neighborhood have easy access to main roads, jobs, and public transit? If the answer is “yes,” it will have higher home values.
• Curb appeal. How a home looks is very important to homebuyers and prospective renters. People prefer neighborhoods with great landscaping, parks, and community spaces.
• Amenities. Homebuyers and prospective renters also prefer neighborhoods that have or are near shopping, restaurants, entertainment, and excellent public schools. It doesn’t hurt if the neighborhood also has a public pool, dog park, or playground. The reason? They don’t want to commute to the things they need or love. And they want to enjoy where they live.

3. Local economy

Economic conditions significantly impact housing markets. When the economy is booming, so is the housing market. When the economy slows, so does the housing market.

Here’s why they’re so closely linked.

In an economic boom, money flows. Residents have more cash to spend, and there’s a lot of upward mobility. This, in turn, often leads to more homebuyers entering the housing market. As the economy slows down, the money stops flowing, and people stop buying houses.

Home values are higher in markets with strong economies and increased demand for housing.

4. Comparable homes

As mentioned before, location is central to determining the value of a home. That’s why the local housing prices and neighborhood comps impact a home’s worth.

In real estate, a comp is an abbreviation for comparable sales. A comparable sale refers to a recently sold home around the home you’re looking to sell or purchase that’s similar in size, condition, and features. Comps are used by everyone involved in real estate.

Sellers use comps to determine the right listing price for a home. Buyers reference comps when determining how much to offer for a home. Appraisers and lenders also use comps during a home appraisal. Real estate agents pull comps from the multiple listing service (MLS) to create a comparative housing market analysis.

5. The home’s size

There’s a reason why MLS listings are priced by square footage. Home size matters. People want space to live comfortably and are willing to pay for it.

According to the National Association of Realtors, every 1,000 square feet added to a home can increase its sales price by at least 30%.

But not all square footage is created equal. Homebuyers and prospective renters want usable space. Usable space is the square footage that can be lived in. Garages, attics, sheds, and unfinished basements are not considered functional spaces.

6. Lot size

Land is precious. That’s why homes on larger lots tend to have higher property values. However, there are some nuances. Here are key factors that influence a lot’s value:

Size of surrounding lots. Let’s say the average lot size in the neighborhood is 0.25 acres. A home with a lot size that’s more than 0.25 acres will have a higher property value.

Location of the lot. Lots in quiet neighborhoods tend to be worth more than similar comps on major roads.

Usability of the lot. People want to be able to access or use the land their home is on. It may not add much value if a lot can’t be used because of easements or zoning.

7. The home’s age

A home’s age can either add to or detract from its value. Newer homes are typically desirable because they reflect changes in how we live. However, that doesn’t mean a new home is always more valuable than an older home. A well-cared-for 200-year-old house in a historic district can command a lot more than a new build in a well-manicured subdivision.

The key ingredient to helping a home age well and maintain its resale value is upgrades.

Upgrades are necessary as a home ages. Kitchens, baths, roofs, plumbing, and electrical work must be maintained and updated to reflect advances in style and technology.

Homes start to show their age when they aren’t maintained. As a result, their value depreciates. No one, save renovators, wants to take on extensive renovations. A home with termite damage, warped floorboards, single-pane windows, lead paint, or asbestos insulation will have a lower home price than one that’s move-in ready. 

8. Condition of the home

As mentioned above, only a select group of real estate investors are interested in buying homes that need renovations and improvements. Well-maintained, move-in-ready homes are more desirable. As a result, they can command a higher sales price than a fixer-upper.

9. The property’s history

A home’s history includes ownership, zoning changes, property taxes, and permits—these impact the home’s desirability and overall market value.

10. Interest Rates

It’s simple. When interest rates go up, home sales go down. Here’s why. Higher interest rates mean higher mortgage rates and payments. This causes a decreased interest in home buying which reduces the value of your  home.

In the U.S., 35% of households live in rental properties, with the average asking rent among apartment listings nationwide being $2,016 per month. Thanks to rising house prices, higher lending and interest rates, and a generation of new adults who prefer freedom over roots, renting has become much more common in the last decade. Over half of U.S. households with children are millennials, and research shows they’re much more likely to rent than own a home.

This is excellent news if you’re looking at rental real estate as an investment strategy. With high demand for properties and rentals continuing to offer tremendous appreciation and cash flow, now is a fantastic time to get started in real estate. A lot relies, however, on your choice of property. Here are some factors to think about when choosing a rental property.

11 top features of a profitable rental property

When buying a rental property, it’s essential to look at it from different angles and through various metrics to determine its financial viability as a long-term asset. Here are some factors to consider when looking for a profitable rental property. 

1. The size, condition, and age of the property

The state of the property is one of the most critical determinants of whether it will end up being a profitable real estate investment or not. Larger homes require more utilities and maintenance than smaller ones, though they can bring in higher rents. A property that needs significant repairs, such as a historical home, may be more valuable but more expensive to maintain, especially if you’re working with a property management company. A move-in-ready property can start bringing in cash flow right away, while a home that requires significant updates will have to sit empty for the duration of those renovations. 

It is important to understand how all these factors play into your long-term goals when making a purchasing decision. In particular, you want to go beyond superficial appearances and do due diligence on any home before putting in an offer. You’ll want to look for leaks or water damage, check the windows and doors, hire someone to look through wiring and electrics, and ensure there aren’t any obvious signs of insects or rodents. 

2. Cash flow and growth potential

As a real estate investor purchasing a rental property, there are two key financial questions to ask about a property:

1. Will the value of the investment property grow over time? While purchase prices of homes can fluctuate yearly, the general trend has historically always been an upward curve. Still, it’s important to know which areas and properties are likely to significantly appreciate over time so you can maximize your return on investment. Look at the Freddie Mac House Price Index (FMHPI) to learn more about the monthly price inflation for houses by state and metropolitan statistical area (MSA). 
2. What is the estimated monthly cash flow from this property? How much rent will this property earn per month, and is it financially worth it, after factoring in the cost of repairs and refurbishments to get it into rentable condition? The 1% rule, which states that the monthly rent you collect should be at least 1% of the house’s value, is considered by many real estate investors to be a reliable measure of a profitable rental property. 

3. The rental market

Certain cities, such as San Francisco and New York, have a high percentage of renter-occupied households, which makes them more likely to have a profitable rental housing market. Beyond just cities, it’s also essential to look at individual neighborhoods. Areas where home prices, and therefore rents, are more affordable can sometimes have more renters, especially long-term tenants with families. When visiting a neighborhood, keep your eyes on how many homes are available to rent. Too many “For Rent” signs could point to high vacancy rates, indicating that rent prices are too high or that owners face difficulties finding qualified tenants.

4. The neighbourhood

In addition to the house and its profitability, you want to look at the neighborhood when considering purchasing a property. Is this an area with many single-family homes or multi-family apartments where you’re likely to have families as long-term tenants? Or is it close to a college or university with a higher turnover? You can get away with doing the place cheaply in college towns, with less expensive furnishings. 

If you’re renting out to families, however, the safety of a neighborhood will be of paramount importance. Crime rates are something renters will look at when evaluating a potential residence, which means it’s something you need to look at, too. Also, look for foreclosures in the area. Neighborhoods with foreclosed homes tend to see an increase in property tax rates and a significant decline in the property value of neighboring properties. RealtyTrac data shows that neighboring home values drop 1% for every 7% drop in the foreclosed home value. 

5. Proximity to schools

Being close to high-rated schools is a good determinant of the profitability of a rental property. Families want to be near educational facilities, which can decide whether a family moves into a home or not. Check out the area’s closest elementary, middle, and high schools, and look into their rankings through websites such as GreatSchools.org. Parents are unlikely to move into neighborhoods or areas that lack quality schools and educational centers, even if they’re perfect in every other way. 

6. Local amenities

In addition to the neighborhood being safe and close to high-rated schools, the physical and social amenities around a rental property can make it highly desirable to renters and, therefore, incredibly profitable for you. When checking out a property, you want to look for nearby shopping malls, dining and entertainment venues, parks, gyms, swimming pools, movie theaters, medical facilities, and local shops. The more there is to do in a community, the more likely it is that renters, particularly families, are enticed into moving there. Convenient access to public transit and shorter commute times is also a plus. Does the area have a good network of roads? Are there potholes and easily flooded areas? Are the streets well-lit at night?

Again, any question a renter would ask is a question that will impact the potential profitability of your property and is something you need to think about as well. 

7. Local economy

The state of a local economy can either attract or repel potential renters. You want to invest in homes in areas where businesses are expanding, median household incomes are growing, and more people are looking to relocate. The strength of the local economy can determine not only the demand for a rental property but how much people are willing to pay and for how long they’ll stay. Long-term tenants are great for rental property because not only do you not have to deal with the hassle—and expense—of finding new tenants, but it also ensures higher occupancy rates, ultimately benefiting your bottom line. 

8. The job market

Cities and towns with growing employment opportunities attract more residents and tenants. A healthy local job market indicates several factors we’ve already discussed—a growing local economy, a robust real estate market, and the availability of and access to local amenities. Plus, more people working in a town and city means population growth and more potential tenants for rental real estate properties. 

9. Property taxes

To profit from your rental property, you’ll need to be very clear about the operating expenses it will incur. Purchasing a property only to have it bleed money regularly is a surefire way to lose out on the cash flow and passive income that makes owning rental property so appealing. Property tax is one of the most significant expenses you’ll need to factor in. High property taxes can turn an otherwise excellent rental property into a lousy investment.

Property taxes ultimately come down to the property’s size and location. Cities and metropolitan areas tend to have higher taxes, while rural areas can be lower. Property taxes tend to vary widely from county to county and state to state. You also want to consider whether taxes for property investors are higher than for owner-occupied properties and whether there are potential property tax hikes proposed for the future. Talk to real estate agents and homeowners in the community or look through the municipality’s assessment office records for this information. 

10. Climate and weather

Suppose a rental property is in a town or city prone to flooding, hurricanes, blizzards, earthquakes, or wildfires. In that case, this is likely to impact both the desirability of the location and your costs of insuring and maintaining the house. There may also be the additional expense of weather-proofing a home or building. 

With an increasing number of people working from home post-pandemic, many families are relocating to larger homes in smaller towns and cities with milder weather conditions, which will also impact the demand for homes in those areas. 

Like taxes, property insurance can significantly increase your costs and lower your profits, so this is something to keep in mind when considering the purchasing of a property. Will your property have higher insurance costs due to vulnerability to natural calamities? Could there be fundamental or structural damage to your home? Have there been any evacuations in the area in the last few months or years?

11. Future development

Finally, knowing what’s coming up in the future is essential. By understanding what’s coming down the pike, you can make more informed decisions about the market value of your real estate purchase and the rental income you can expect to receive. For instance, new schools or shopping centers getting the go-ahead for construction tells you that there’s money being put into the economy, that this will attract more investment, and that new residents will want to move to take advantage of these new developments. Likewise, shops closing, schools being relocated elsewhere, and projects not being given the green light can also tell you a bit about a place’s short-term potential—or lack thereof. 

Ready to invest in rental properties?

• Rental property investing can be incredibly lucrative. And if you’re smart in choosing a profitable rental property, you could cover the monthly mortgage and property expenses with the rent payment, thereby paying for the investment even as it grows. 

Airbnb is an excellent platform for short-term vacation rental property owners. It’s user-friendly, popular, and provides access to a large market of potential renters. But there’s a lot more to running a successful Airbnb business than publishing a listing. 

This quick guide explores the ins and outs of running an Airbnb business. Use it to help determine whether an Airbnb rental is right for you.

What is Airbnb?

Let’s start at the top.

Airbnb is an online marketplace that connects people who want to rent a short-term rental (guests) with vacation homeowners (Airbnb hosts). It makes it easy and safe for prospective guests and hosts. They verify personal profiles and listings. They also help manage messaging and payments between guests and hosts.

An Airbnb rental property can be anything from a spare room in your home to an RV to an oceanfront home It’s a great way for homeowners to turn an unused space or property into a vacation rental that earns extra income. It’s an excellent way for real estate investors to maximize returns on their short-term rental properties.

What is an Airbnb Business?

An Airbnb business is any legal business entity that lists short-term vacation rental properties on Airbnb. It’s that simple. And, as with any business endeavor, owning an Airbnb rental business has pros and cons.

Pros and Cons of an Airbnb Business

Airbnb can be a great way to increase your cash flow, but it’s not for everyone. Whether you’re looking for a side hustle or a full-time Airbnb rental, here are some pros and cons of running an Airbnb business.

The Pros of an Airbnb Business

The pros of running an Airbnb business are the same as owning any short-term rental,  but a few additional benefits come with using the Airbnb platform. These include:

1. Access to Airbnb Guests

Airbnb has 5.6 million listings in 100,000+ cities worldwide, hosting over half a billion guests yearly. Hosts access this large pool of potential guests for their Airbnb listing.

2. Airbnb Host Resources

Airbnb has a blog with a few articles to help Airbnb hosts optimize their vacation rental listings. They’ve also built a community where Airbnb hosts can connect and learn from one another.

3. Property Management Tools

Airbnb provides tools to make communication and payments secure for hosts and guests.

The Cons of an Airbnb Business

The cons of running an Airbnb business are like owning a short-term rental but with a few nuances.

1. It’s Hard Work

Many believe running an Airbnb business is as easy as listing an Airbnb property. It’s not. Running a successful Airbnb business is like running any other type of small business. Marketing, managing, promoting, and optimizing your vacation rental takes time and effort. It also requires many startup costs to purchase, furnish, and prepare the Airbnb rental for listing.

2. Airbnb Property Management

As a small business owner, you must promptly respond to guest inquiries and requests. You also must manage all marketing, customer relations, check-in, check-out, cleaning, and maintenance. Airbnb holds hosts accountable for guest complaints. So, it would be best if you were on top of managing your property and keeping guests happy.

3. Local Laws and Taxes

Many cities have specific laws and regulations when it comes to short-term rentals. Some jurisdictions require special permits and licenses to list a property on Airbnb. That’s on top of any homeowner’s association rules. So, you need to be sure you do your research and take it to a lawyer before drafting your Airbnb business plan.

6 Steps to Launch an Airbnb Business

Launching an Airbnb business is much like launching any other type of small business. Here are the key steps you need to take to start an Airbnb business.

1. Secure a Property in a Desirable Real Estate Market

This one seems like a no-brainer, but it’s super important. Not every real estate market attracts tourists. And not every real estate market allows short-term rentals.

A desirable real estate market would be any city with or near known tourist destinations. Think beaches, mountains, landmarks, or festivals that attract visitors all year round.

Once you’ve found a property in a desirable real estate market, the next step is to investigate the local laws and zoning before purchasing your short-term rental property. Why? Some cities have banned short-term rentals. Others have imposed strict regulations, which can be very limiting. You don’t want to purchase a property and then learn you can’t rent it as a short-term rental.

2. Make Your Airbnb Business Legal

Before you list your property, we recommend you consult a business attorney to set your Airbnb business up for success. They’ll help you obtain the legal documents, certifications, and insurance your business needs to operate legally while protecting your personal assets.

For example, you’ll need a business license, business insurance, an EIN for tax purposes, and a business bank account. You’ll also need to ensure your homeowner’s insurance covers short-term vacation rentals.

Many Airbnb hosts set up a limited liability company (LLC) as their legal business entity because it helps protect the real estate investor’s personal assets. It also makes it easier for them to expand because each additional short-term rental property can be under the LLC.

An LLC also allows you to set up a business bank account, get an EIN, and make it easier for your Airbnb business to pay your Vacation rental taxes. These include real estate and any local sales tax.

A business lawyer will review all your options and help you set everything up correctly.

3. Prepare Your Property for Listing

This is probably one of the process’s most fun and overwhelming steps. Unlike long-term rentals, short-term vacation rentals must be furnished and ready for guests. Here’s a list of some of the things you’ll need to do to prepare your Airbnb property for listing:

• Repair maintenance issues.
• Set up all utilities, including internet and Wi-Fi.
• Furnish the property. This includes sofas, beds, TVs, linens, dishes, curtains, etc.
• Provide additional essentials like board games and toiletries to help your Airbnb property feel like “home.”
• Deep clean the property.
• Install an Airbnb lockbox so your guests can check themselves in.
• Create house rules and provide straightforward check-in and check-out instructions.
• Invest in high-quality listing photos.
• Consider ways you can customize each guest’s experience. This may be a welcome letter, a small “thank you” gift, or a guestbook for people to sign.

Preparing your Airbnb property for listing can be overwhelming, but it’s essential. You’re competing with other short-term vacation rentals in the area. You want yours to stand out and earn excellent reviews.

4. Determine Your Nightly Rate

This is an important step and one that requires a lot of thought. You want to be affordable and competitive, but you also need to earn a profit. Here are some factors to consider before you set your nightly rate:

• Is it peak or off-season? Your nightly rate will likely fluctuate between them.
• Account for any sales tax in your nightly rate.
• Factor in Airbnb’s fees. They charge a 3% fee of the booking subtotal for most hosts.
• If you decide to accept credit card payments, you need to factor in any fees they may charge.
• Are you going to hire a cleaning service? You’ll want to make sure you charge enough to offset the cost of it.

All of the factors listed above can cut into your Airbnb income. That’s why it’s essential to consider them when calculating your nightly rate.

5. List and Market Your Airbnb Property

Remember those high-quality photos you had taken when you were preparing your property? Here’s where they come in handy. You will use them to build your brand and market your short-term rental.

Here are some tips to optimize and market your Airbnb listing:

• Write an engaging description that includes information about your unique amenities and the property’s proximity to local attractions.
• Keep your booking calendar up to date.
• Respond to guest inquiries as quickly as possible. It helps ensure they have a positive experience throughout the entire process.
• Ask for reviews after each guest leaves. Social proof is one of the best types of marketing. That’s why Airbnb listings with numerous positive reviews rank higher in the platform’s algorithm.
• Automate as much of the booking process as possible. Airbnb has tools to help.
• Consider sharing pictures of the property on social media and asking guests to share their own. This creates even more social proof and provides free word-of-mouth marketing.

You want your short-term vacation rental to be unique and memorable. Investing the time to optimize your listing will help your property stand out and get more bookings.

6. Manage Your Airbnb Business

Property management can be one of the most time-consuming aspects of owning a short-term rental property, especially an Airbnb. It only increases as you add more and more rental properties to your portfolio.

Running a successful Airbnb business includes:

• Managing property listings
• Staying on top of property maintenance
• Scheduling bookings and handling cancellations
• Responding to all guest communications
• Providing exceptional guest service
• Organizing cleaning services
• Marketing the Airbnb property
• Ensuring high occupancy rates
• And more!
• Managing an Airbnb business requires a lot of time and attention. That’s why many property owners hire a property management company to help. It helps streamline processes but comes with a price tag.