Are you having trouble with buying an investment rental property?” For starters, check out your beginner’s guide when investing in a rental property. As a smart investor, you know how profitable real estate is, with homes and condos being one of the greatest passive revenue sources.
While starting a passive income business in real estate investment may sound exciting, it is not an easy field for a beginner in real estate investing. We’ve got 5 crucial tips on how to make rental property investing profitable in this article: from choosing a great property to dealing with difficult tenants successfully.
The will provide useful information when it comes to investing on either a single family home or a multi-family complex. Thus, let’s embark on a rental property investment journey that is aimed at establishing your road to liberty.
Benefits of Owning Rental Property
Rental property can come with great rewards. The first being that it provides a way of making an additional income source in a passive manner. Rental Income can be generated after paying back the mortgage on the property making it an additional source of income.
Moreover, rental properties appreciate in value which means you will be making a profit on an appreciating asset. Additionally, rental properties provide some tax advantages such as deducting the mortgage interest, property taxes, and maintenance expenses.
Still, running a rental property does have its own complications. Tenants can sometimes become a big challenge to deal with; unforeseen repairs may add more expenses, property tax and/or insurance premiums may rise. Moreover determining the appropriate property in the right area may also be a challenge. Thus, one should always consider these aspects first then make a decision of whether or not to invest in rental property.
Types of Rental Properties
These include single family homes, condos, townhouses, and multi-unit residences. First-time investors should focus on investing in single-family homes. Rental accommodation is very mobile and simple to handle and it is in great demand.
Townhouses and condos are cheaper but you end up paying a periodic fee to the homeowner’s association. Managing multi-unit complexes provides greater return on investments; however, it involves higher overhead. More units equals more costs for repairs and managing.
The area you select and demographic are important for choosing any rental. As an illustration, when dealing with students, it is important to purchase a home that is in close proximity to the college or has convenient transportation to and from campus very close. If your target renter is a family, then look for a place near good schools and parks.
Steps to Buying Rental Property
Buying rental property follows the same steps as purchasing one’s home. Nevertheless, there are some important areas of distinction.
As we have seen earlier, you will start by choosing the kind of property to acquire.
You should also get a pre-approval for a loan.
Lastly, ensure that you look for an experienced real estate agent who has represented many investors. By doing so, you will get professional guidance on searching for the best-suited properties as well as negotiating a mutually agreed purchase price.
You will then search for a property. Afterward you will inspect the subject property in order to discover any problems. Once that is satisfactory, you will have to confirm how much rent is charged in the region through an appraisal or online rental listings and real estate data aggregators. Doing so enables you to ascertain whether the property is able to provide sufficient rent to cover for the property’s debts.
Financing Options for Rental Property
The financing of a rented property is different than the financing of a primary residence. That difference is interest rates tend to be higher and down payments are 15- to 25-percent. In most cases, you must have a minimum down payment of 20 percent or higher to get a mortgage on a rental property.
In this regard, another means of getting financed can be through a home equity loan or line of credit based on an existing property you own. This can be the money you will use to buy the rental property in lieu of obtaining another mortgage. Although, it is risky because, in case a rented property fails to produce sufficient income to cover the mortgage payments, you put the most important asset at risk of loss.
Selecting the Location for a Rental property
The success of the rental property depends on finding the right area. Look out for a property in an area with negligible crime and which is served by highly rated schools.
You should also ensure that you factor in the nature of jobs in the locale as well as the general state of the economy. A better yield over time is obtained by investing in a property in developing areas or cities that will start a major redevelopment project spanning many blocks.
Become familiar with rental demand in that particular region or neighborhood. Go into areas with low vacancy and lots of demand. It is vital in ensuring that your house remains rented with enough monthly income to cover your expenses.
Refurbishing and prepping up the house for tenancy.
After buying a rented home, you must also ensure that your property is ready for its new occupant. This could involve rehabilitating the premises in order to make it attractive for tenants. One just needs simple things like cleaned walls with new paint and new flooring. Additionally, you will need to make sure that all appliances work properly and that the place itself is neat and tidy.
Moreover, you should ensure that you meet all the applicable stipulations pertaining to rental properties within your locality. If applicable, this may entail getting a rental license or permit, installing smoke detectors and carbon monoxide detectors, and making sure that the property is up to code with regard to safety.
Setting Rental Rates for Tenants
There are always rental rates that guarantee success or low vacancy. It is important for you to do research on what is considered as the average rental rates in the local market. You can use this information to come up with a suitable rental price which will attract prospective tenants thereby giving you enough income to cover the new mortgage and other expenses.
You should create a good marketing campaign to lure and have tenants apply. This can involve putting up the property in rental sites, advertising it on social media, and working with a licensed property manager.
Also, it’s vital to check out prospective tenants and if they are appropriate to the home. Such things may involve undertaking a criminal background check of the party in question along with their financial status, credit history, identification, and references from people who have interacted with them as their landlord.
Property management and dealing with tenants
It is not easy running a rental property or even a number of them. This will entail handling request for repairs, carrying out collection of the rent due and taking up tenants’ concerns. As well, it will be necessary for you to make sure your property is in compliance with the local laws.
For more peace of mind in managing property, you may consider engaging a property management firm. They are able to handle everything including screening prospective tenants, collecting rents and any other work order for maintenance. Therefore, this will enable you to manage your time and have some freedom to focus on other parts within your investment portfolio.
How to Succeed in Purchasing a Rental Property
A good investor has to have patience and search on the appropriate property to rent out. Take your time during the purchase phase and make sure you carry out thorough research on the property and local rental market. Moreover, anticipate unexpected expenses like repairing and general upkeep.
Another vital issue is how one should handle their renters. Inform your tenants about your expectations at the very beginning of the lease period. Offer them opportunities to give feedback as well from time to time. Doing this will help you avoid major issues that could have been prevented early and make sure your tenants are comfortable with you.
Therefore, it is advisable to review the rental rates for your market and adjust them accordingly. In case you are incurring more costs than income coming in, it is advisable that you adjust your rent upward. In the case of the rental demand being high, then you may find yourself increasing your rental rates.
Conclusion
Rental properties are a great place for investors to start making passive income. On the other hand, one must conduct his or her own research to be aware of the risks and advantages. Using the suggested tips above will help you be ready for investment property rentals. Be patient, ensure you vet your properties well if you want to the future to have financial independence.