For the 12th consecutive year, 37% of Americans consider real estate the top investment choice—nearly doubling stocks at just 16%.¹ This isn’t just sentiment; investors are putting their money where their beliefs are, purchasing 13% of all homes sold in 2024.²
The truth is, real estate offers unique advantages that traditional investments can’t match. A rental property provides multiple income streams, delivering monthly rent payments while simultaneously building equity and appreciating in value. Plus, leverage amplifies returns: Even if you put down 20%, you’ll benefit from 100% of the property’s appreciation gains. Tax advantages, such as depreciation and deductible expenses, can further boost profitability.³
When executed wisely, rental properties can deliver steady cash flow today and significant wealth tomorrow. But success starts with preparation—knowing how rentals make money, who is best suited to invest, what to look for, and where to start.
How Rental Properties Build Wealth
Great rental properties create wealth through three primary channels that work together to compound returns over time:
-
Cash Flow represents net monthly income after expenses.
Formula: Total rent minus all expenses (mortgage, taxes, insurance, maintenance, management fees, etc.).
A duplex renting for $3,300 monthly with $2,700 in expenses generates $600 monthly positive cash flow—money for profit or reinvestment. -
Appreciation refers to property value increases over time. Historically, U.S. home prices have risen approximately 3–5% annually.⁴
A 5% annual appreciation on a $300,000 house adds $15,000+ to your equity annually from market gains alone. -
Equity growth also occurs as mortgage payments reduce loan principal. Ideally, tenant rent effectively covers these payments, so tenants are purchasing the property for you incrementally. If $500 monthly goes toward principal, you gain $6,000 in equity annually.
The total return combines all three elements. While individual components might not create overnight wealth, together they compound impressively for patient investors.
Who Should Invest in Rentals?
Rental property investing isn’t for everyone. The most successful investors tend to share a few traits:
-
Long-term wealth builders with financial stability and risk tolerance typically succeed. Investment properties require substantial down payments (typically 20–30%) plus cash reserves for maintenance and vacancies. You need stable finances with emergency funds before investing, as real estate is illiquid.⁵
-
Detail-oriented, patient investors often find the greatest success. Nearly 90% of real estate investors encounter challenges—bad tenants, unexpected repairs, or incorrect pricing.⁶ Smart investors educate themselves and analyze numbers carefully before buying.
-
Hands-on, resourceful owners who can handle basic maintenance, repairs, and tenant management themselves also have an advantage. These investors can save thousands each year on property management and service fees, boosting overall returns.
If you align with these traits, rental property investing can be a powerful tool for building lasting wealth.
Where to Begin Your Investment Journey
The first step is to contact an investment-savvy real estate agent. We can be an invaluable partner in finding and securing great properties by offering:
-
Access to off-market deals that you can’t find on your own.
-
Expert market knowledge to help you choose the right property.
-
Deal analysis assistance to maximize your returns.
-
Ongoing network support beyond closing with contractors, managers, lenders, and insurance brokers.
With the right guidance from day one, you can move forward with confidence and start building a portfolio that works for you.
Your Rental Property Evaluation Checklist
Not all rental properties offer equal investment potential. Smart investors use systematic criteria to identify truly great opportunities:
☐ Location & Market Analysis
-
Location determines everything: tenant quality, rental demand, and appreciation potential.
-
Research vacancy rates, neighborhood safety, and school quality.⁵
-
Evaluate regional economic trends, employer growth, and infrastructure plans.
☐ Financial Analysis
-
Perform detailed cash flow analysis.
-
Use the 1% rule: monthly rent should equal at least 1% of purchase price plus repairs.⁵
-
Run sensitivity analysis to ensure profitability under various conditions.
☐ Property Condition & Carrying Costs
-
Older homes may need costly repairs. Schedule inspections on roof, foundation, electrical, plumbing, and HVAC.⁷
-
Factor in layout, capital expenditures, taxes, and insurance costs.
☐ Property Type Selection
-
Single-family homes, condos, or townhomes are the best starting point.⁵
-
Avoid niche properties with higher vacancy risks.
☐ Due Diligence Requirements
-
Verify numbers independently.
-
Research comps, inspect thoroughly, and review landlord-tenant laws.⁷
BOTTOM LINE
Great rental properties aren’t found by chance—they’re identified through systematic evaluation. Properties that build lasting wealth combine healthy cash flow, solid locations, sound physical condition, and strong growth potential.
Success requires patience, proper analysis, and the right team. While markets fluctuate, well-chosen properties consistently reward investors through income, appreciation, and equity growth creating real wealth over time.
Ready to start building wealth through rental property investment? The Tully Team is ready to help. The fundamentals we’ve outlined provide your foundation, but local market expertise and deal analysis make the difference between mediocre and exceptional investments. Contact Shanon Tully at The Tully Team to discuss how these principles apply to current opportunities in your target market.
Sources
-
Gallup – “Real Estate Still Best Investment” – https://news.gallup.com/poll/660161/stocks-fall-gold-rises-real-estate-best-investment.aspx
-
Realtor.com Research – “Investor Report June 2025” – https://www.realtor.com/research/investor-report-june-2025/
-
Investopedia – “Real Estate vs. Stocks” – https://www.investopedia.com/investing/reasons-invest-real-estate-vs-stock-market/
-
Redfin Blog – “Average home appreciation per year” – https://www.redfin.com/blog/average-home-appreciation-per-year/
-
Investopedia – “10 Factors to Consider When Buying an Income Property” – https://www.investopedia.com/articles/mortgages-real-estate/08/buy-rental-property.asp
-
Clever Real Estate Survey – “Residential Real Estate Investing in 2024” – https://listwithclever.com/research/residential-real-estate-investing-2024/
-
Investopedia – “5 Ways to Value a Real Estate Rental Property” – https://www.investopedia.com/articles/mortgages-real-estate/11/how-to-value-real-estate-rental.asp
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
Shanon Tully is a licensed real estate broker and leads the The Tully Team at Platinum Partners Realtors located in Downers Grove, Illinois. She provides exceptional concierge real estate services throughout the Chicagoland area, especially the western suburbs. A residential listing specialist, Shanon thoroughly enjoys helping clients achieve their goals, and particularly relishes the unique challenges associated with staging, redesigning, and marketing properties. Her attention to detail and dedicated care for her clients has earned her numerous rave reviews! Among other things, Shanon has earned several designations and certifications including SRS-Seller Representative Specialist, PSA-Pricing Strategy Advisor, RENE-Real Estate Negotiation Expert, SRES-Senior Real Estate Specialist, CSC-Certified Staging Consultant, ABR-Accredited Buyer’s Representative. She is eager to speak with you and always welcomes new referrals! Shanon can be reached at 630.435.3585 or [email protected]