Investing in real estate is actually pretty easy and a lot more common than some may think. Of course, like with any investment, there is still some risk involved. However, by educating yourself in the real estate market and making informed decisions, you can still turn a profit. Here are three things that you should consider when looking for a rental property to invest in.
#1: Location
Location is one of the most important things to consider when you are looking to invest in a rental property. One of the worst locations you can end up with is a place where the population is decreasing and there’s no potential growth. This could indicate several things, such as a high crime rate, no opportunities for jobs, etc. Instead, look to areas that have the potential for a lot of growth. Signs of growth include:
- A good school district
- A growing job market
- Access to malls, restaurants, parks, and other amenities
- Access to public transportation
These are all signs that more people are willing to move to this area, and are more likely to want to rent long-term versus short-term.
#2: Be cautious of a fixer-upper
Houses that require a little more work to be done on them before selling can be very tempting to buy because they cost significantly less than homes that are move-in ready. However, the amount of money it takes to carry out the necessary home improvements may end up costing you a lot more money than if you were to just invest in a home that didn’t need any renovations. Home renovations and remodels tend to cost much more than what most people think, and going this route isn’t the most financially savvy idea unless you or someone you know is good with advanced home improvement projects.
#3: How to purchase the property
When it comes to financing a rental property versus buying one straight out with cash, there is no simple answer to which one is the best. It all depends on what you are able to do and what your goals are as a real estate investor. For example, the cash flow is lower when you choose to go with financing, but the returns are greater. You can also choose to go with a private lending company (not necessarily privately-owned) that allows you to be more flexible with your loan terms. Also remember to not go too far beyond your budget.
3 Other Things to Consider
#1: Becoming a Landlord
Before you even purchase a property, there are a few other things you should consider. One being the fact that as a rental property owner, you are now a landlord. This means that you are responsible for not only the property, but all of the cleaning and repairs that go into maintaining a house. There will have to be some money set aside for maintaining your property, which is most likely to come from the rent collected from your tenants.
#2: Screening Tenants
Speaking of tenants, this is another thing to think about before buying a rental property. Just like you will take the time to ensure that you are investing your money in a quality rental property, you will also want to take the time to make sure that you’re renting your property to quality tenants. Bad tenants tend to cost you more money than you make, so be wary of tenants who cause a lot of property damage and who don’t pay the rent. This is why it’s important to thoroughly screen your tenants.
#3: Investing in a Property Manager
Managing a rental property is indeed a tough job, so it can be a good idea to get a property manager to help alleviate some of the responsibilities. Just keep in mind that you will have to pay the property manager yourself, so that’s slightly less money that you’ll get to keep. However, it will allow you to have more free time to invest in other endeavors.
Once you have decided that investing in a rental property is right for you, remember to develop skills to be a good property manager, or that you have chosen a good property manager. Another part of being successful in the rental industry is having a reputation of being someone worth renting from.
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