Rentals are a good long-term wealth building strategy for investors. What are some creative techniques an investor might employ to maximize profits?
The two primary objectives of a real estate investor are cash flow and appreciation. You don’t need to own a property to make cash flow or benefit from appreciation. A lease entitles you to possession, which allows you to make cash flow. An option gives you the right to buy at a set price, which allows you to benefit from future appreciation.
Lease – The Right to PossessionUnder a lease agreement, the lessor (landlord) gives the lessee (tenant) the right to possess and enjoy the property, which is one of the most important benefits of real estate ownership. The lessee is usually not responsible for property taxes and major repairs. Once you have the right to obtain possession of property, you can profit by subletting or assigning your right to possession (based on the conditions of the agreed lease).
For example, I have the right to lease my primary residence from my landlord. I have been allowed to do monthly sub-rentals for the past seven years, and these cover my costs of occupancy.
SubleaseA sublease is a lease by a tenant to another person (subtenant) of a part of the premises held by the tenant under a lease. The sublease can be for part of the premises or part of the time period.
AssignmentAn assignment is a transfer to another of the whole of any property or any estate or right therein. As with a sublease, the master tenant is not relieved from liability for obligations under the lease. However, the assignee of a lease is in contract with the landlord, and thus the landlord can collect from the assignee or the master tenant for nonpayment of rent.
Assignment and subletting are always permissible without an express provision in the lease forbidding the tenant from doing so. As a tenant/investor, it is imperative that there are no anti-assignment or anti-subletting clauses in your lease with the owner of the property.
So get creative in your thinking about rentals!