Acquiring rental property for the first time doesn’t have to be scary. First-time buyers have several options for owning rental properties.
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Are you interested in buying a rental property, but not sure where to start? Acquiring a rental property for the first time doesn’t have to be intimidating, especially for investors who do plenty of research. Almost anyone can buy rental property, provided that they understand their options.
Keep reading to get the scoop on buying your first rental property. Find out your options for owning rental units, and get your head around the major pros and cons of owning rental property.
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First-time buyers may perceive that direct, physical ownership is the only option for buying rental property. Owners and investors have multiple options for buying rental property, which can involve either active or passive ownership. Investors have several options to get into real estate investing.
Let’s dig into all the the ways that first-time buyers can own rental property:
Buyers interested in rental properties can directly purchase a unit and actively manage it to earn rental income. Rental properties can be private residences, multifamily homes, or commercial or industrial properties.
Physical custody of a rental property is the most direct path to ownership for first-time buyers, and also the most demanding. Directly owning a rental property requires finding and managing tenants, completing major renovations, and managing all financial aspects of owning property.
Those interested in buying rental property need sufficient upfront capital to either purchase or finance the real estate. Many buyers require mortgages to afford a rental property.
Buyers can purchase fractions of rental properties by participating in real estate crowdfunding. Crowdfunding platforms fractionalize real estate ownership into shares, with each share representing an ownership stake in a specific property. Many crowdfunding platforms focus on properties with attractive rental income, and pass that income along to investors in proportion to their ownership stakes.
Investing in crowdfunded real estate confers direct ownership but not rights to physical custody. Owners of crowdfunded real estate are passive, meaning that they are not responsible for actively managing the daily operations of the rental property.
First-time buyers can purchase ownership stakes in multiple rental properties using real estate crowdfunding platforms. Buyers are obligated to cede some control to the crowdfunding platform itself, which manages the relationships with real estate sponsors and property managers.
Buyers interested in directly owning rental real estate can also purchase tokenized real estate. Real estate tokens, which use blockchain technology, signify direct ownership of real estate that’s been tokenized. Most tokenized real estate is also fractionalized, although real estate tokens can indicate 100% ownership of a property.
Buyers of tokenized real estate are passive owners who do not have responsibility for the operational aspects of a property. Token holders of rental property receive a portion of the property’s rental income in proportion to their token holdings. Blockchain technology enables real estate sponsors to connect more directly with real estate buyers, using real estate tokens to transact in a way that is transparent, efficient, and secure.
First-timers interested in owning rental properties can use a real estate tokenization platform like HoneyBricks to access tokenized real estate offerings. Real estate tokenization platforms fully support real estate tokens without taking custody—token buyers hold their own real estate tokens in compatible digital wallets.
Buying rental property has both advantages and disadvantages, for both first-time buyers and seasoned landlords.
These are some of the major pros and cons for rental property owners:
As a first-time buyer of rental real estate, you may be wondering about how to get started.
Let’s take a closer look at the basic steps to follow for this type of real estate investing:
As a first-time buyer, you may be hesitant about purchasing rental property. Many investors are attracted to the cash flows associated with rental real estate, but are unprepared to be landlords for demanding tenants. Prospective buyers need to conduct plenty of research to explore their options before plunking down any of their hard-earned money.
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