Investing in rental properties has become one of the top trending ways to create a revolving wheel of wealth in the residential space. Very few assets, if any, reward investors with a greater return on investment for extended periods of time.
These residential rental properties allow investors to make money passively. However, there are several things to consider when immersing yourself into the home renting experience. If you find yourself intrigued by the passive income lifestyle, use these tips when buying your first investment property.
- Research The Right Properties
The first step when jumping into the rental real estate market is to search for the right properties. Anyone can purchase an ordinary property and call it a rental, but the investors who do research will find the most success. It’s essential to strategically find what kinds of properties are doing the best in the current market.
Ask yourself these questions: Are you looking for a single or multifamily property? How many bathrooms? Is there backyard space? Are you looking for a property in the suburbs or the city? Is it a new house or an old house?
Before you do anything else, you should develop a solid understanding of the types of properties along with the condition and features of that property before committing. Conducting a rental real estate market analysis could also be beneficial when trying to reach your financial goals. As rewarding as rental real estate can be, investing in a non-desirable property can alter your passive income aspirations. Once you discover the right type of property for your investment, you can then consider the right location.
Another important step when buying an investment property is to consider the right location. One of the golden rules of real estate investing is focusing on the location of the prospective property. The location of your potential rental property asset is one of the most critical elements in the process. Proximity to desirable locations like restaurants, shopping malls and well-established education will contribute to demand and value, which will allow landlords to increase their rental asking prices. As a result, prospective landlords need to be aware of where they intend to buy.
The specific location of a property will determine a variety of factors, which also may dictate the opportunities your property may open. As a real estate investor, you don’t want to go for a location that has too many available properties for rent. Ideally, you need a location with reasonable supply and high demand. This will also greatly impact the types of potential clients your assets will attract. For example, if the property is acquired in a tourist destination, it may be better served as a vacation rental. Similarly, properties that are close to college campuses may be best suited for student housing. Overall, finding the right income property location is very important and will determine almost everything moving forward, so spend time studying up.
- Start Thinking Like A Landlord
When you have ambitions to become a landlord, it’s important to start thinking like a landlord. Navigating this process can create a certain level of stress for people who aren’t familiar with best real estate practices. For some, this may mean developing handy skills around the house. If you’re serious, you should take the time to learn about the infrastructure of homes along with how you can maximize your ROI. For others, this may require more real estate assistance like hiring a third-party property manager.
More importantly, however, prospective landlords should look into third-party property managers. The assistance of a property manager can reduce the workload significantly for a landlord. Using the help of a property manager will free up more time for you to spend on more valuable things than the typical landlord assignments. Usually, investment property owners who hire property managers are able to add more estates to their rental property portfolios while avoiding additional work to their daily itineraries.
- Consider Financing Options
In order to find prosperity in this extensive process, begin by considering the most valuable financing options for your investment aspirations. On the outside looking in, most people who are unfamiliar with owning a rental property are unaware of the funding options best suited for them. However, it’s a bit more financially complex than that. Naturally, the higher your monthly payment, the less cash flow that is available. Perhaps, the cash flow isn’t as high as you anticipated.
One of the things to consider when buying rental property is your financing options. When you apply for a mortgage loan, you’ll find plenty of options available for financing your first investment property. Should you choose a 15-or 30-year mortgage? An FHA loan or a conventional loan? Of course, different options come with different benefits and costs. Therefore, it’s important that you weigh all your financing options carefully to make sure you choose the right loan option that best suits your financial standing and real estate investment goals.
- Budget For The Unexpected & Any Improvements
When considering your expenses before buying your first rental property, it’s also important that you budget for unexpected costs and any improvements that come with owning that property. Some of these include fees, taxes, vacancies, and damages done by previous tenants. Take the time to set aside money for revamping your projected budget. Over time, using your funds for improvements and upgrades can decrease the amount of extra expenses needed for repairs in the future. Making the proper upgrades to your rental property not only provides a safety net but also increases the value of your home as well.
If saving money and budgeting is an issue for you, try to think of other ways to gather funding. For example, if you’re a homeowner yourself, there are additional ways you can collect money to make upgrades. A HELOC is a reliable way to gather funds in order to tend to certain projects on your property. This is a secured loan where you can qualify for lower interest rates than you would for an unsecured personal loan. Ultimately, use your updated budget to restore any items to the condition they were in before they stopped working. For example, a landlord who replaced old, broken wooden flooring with fresh hardwood has made an invested improvement, thus increasing the lifespan and value of that property.
Like any occupation, becoming a real estate investor has its ups and downs. It’s essential to work strategically and mindfully to generate a cash flowing rental portfolio. In order to find success, use these tips to build your rental real estate knowledge.