Investors venture into real estate hoping for long-term passive income. Rental income is capable of providing consistent passive income, but real estate investment can be risky. Buying at the wrong time may cause you to lose a significant amount of equity.
If you are a newbie rental property investor, you may want to keep your day job as you learn the ropes of real estate investing. Start by doing research on healthy markets then establish realistic estimated profits and rent prices. Experts recommend that you invest enough in the properties so that you can have a positive cash flow. This way, you will not have to spend your income to run the business.
Currently, it is difficult for newbie homebuyers to buy houses because most of the affordable ones are under negative equity. 18.8% of mortgaged homeowners in the U.S are underwater and cannot sell their homes without cash at the closing table. Because of this and expensive national rents, families have to rent at very high costs. The market may be ideal for landlords but not for rental property buyers.
To engage in bidding wars, you will need a lot of money. Fortunately, some of the areas where properties are most expensive are highly demanded by renters. Be a smart buyer and buy properties in locations where both the rent and demand for rental houses are high. Properties in expensive locations have a high chance of appreciating in value and so long-term investment guarantees profit.
If you do not have enough capital to buy rentals with cash, you should either invest in cheaper buildings or wait to buy. Do not go for prized properties, opt for working class neighborhoods instead where the rent is moderate. Before you buy rentals, plan your property management strategy carefully.
Some property owners, especially those with handyman skills, may decide to run the entire business on their own, from emergency upgrades to tenant requests to signing leases. This strategy may seem cost-effective, but it is not beneficial for all rental owners.
Some may have to hire property managers. Begin searching for rental property 3–6 months before you plan to buy. This timeframe will allow you to research the market and understand the current values. You can search online, or physically visit the units.
If you do not have the time, hire an agent. When choosing a rental property, look for the qualities you might want for your own home. What appeals to you will appeal to renters. When you are an onsite homeowner, you will understand what it is like to live in your property and make the necessary improvements.
Moreover, you will have access to affordable financing. Before you close on a home, invest in an inspection; and if upgrades are required estimate how much they will cost before you buy. Make the necessary upgrades immediately after buying for the safety of your tenants and to attract renters.
Originally published at https://financierpro.com on October 14, 2020.