4 keys to investing in a rental
If you have some extra money saved and want to invest it wisely, real estate remains a strong choice. CNBC reports that millionaires agree that property is one of the best investments you can make. A steady stream of passive income is always helpful, right? You can rent out the property to help cover the mortgage and later sell it for a profit once it has appreciated in value.
If you’ve never bought or managed an investment property before, this unfamiliar process may be daunting. It’s wise to work with a skilled realtor like a member of The Drew Coleman Team to identify a fitting piece of real estate. Acquiring a house, multi-family unit, or apartment is just one part of the process if you want to make money off your investment, however. This guide breaks down the basics.
Figure out your financials BEFORE you proceed with a purchase
Before you start shopping around for real estate, get those financials in order. How much of a down payment will you need? This figure will depend on the market and size of the property you are seeking. Credit.com suggests making a larger down payment so that you can get more favorable mortgage terms and avoid having to buy private mortgage insurance.
You should also consider the financial framework you want in place after you’ve purchased the property. If you’re going to collect rental income, for example, this is taxable, according to SmartAsset. It may be best to set up a limited liability company and establish your investment property as a legitimate business. You can use business formation services like ZenBusiness to make the LLC set-up process more affordable.
Location, of course, is a key factor when buying a property. Whether you plan to rent or sell the place in the future, make sure it’s in a spot that has appeal. Major urban areas, beach locations, and college towns are all viable options. Roofstock provides a list of places from Atlanta to Chicago where you might consider buying a rental property based on criteria like home values, rent index, and projected future price increases.
The type of property is also a factor. If you want to transform the space into a lucrative Airbnb, for example, you’ll probably want multiple bedrooms. If you’re hoping to sell the house to a family down the line, factors like a backyard where kids can play are important.
Get the property in shape for rentals – or a house flip
If you want to maximize profits on your investment property, you may likely want to make some upgrades to make it more appealing to buyers or renters. Lodgify suggests making improvements like adding a fresh coat of paint or upgrading the amenities. For example, a luxury touch like a skylight or Jacuzzi can command a higher price.
Even the way you equip the property makes a difference. If you want to rent to families, for example, including items like a playpen or changing table will allow you to better reach your target market. Alternatively, if you want to cater to couples, romantic additions like a fireplace can help set the tone.
And, of course, flipping the property to create income is a whole different ball of wax. If you’re intending to rehab a house and then quickly resell for profit, educate yourself on the multitude of variables that come into play in that scenario. LandCentury offers a very thorough guide to approaching a house flip.
Establish a network of professionals to support property management
You can’t simply set up your investment property and expect it to run seamlessly without oversight. Consider establishing a professional network to help manage and run the property, especially if you aren’t located nearby. This could include maintenance persons like plumbers, cleaning crews, and property managers. Mashvisor explains what property managers do, from finding tenants to overseeing maintenance.
We can’t stress enough the peace of mind a quality property manager can bring. Drew himself has owned a rental property and will tell you it’s quite freeing to be unencumbered with the nitty, gritty details. “Rental property can be one of the best ways to build wealth. That being said, although it costs a bit more, I always sleep more soundly knowing that a property manager will be there to field that late-night phone call regarding an issue with the property.”
Buying and managing an investment property is certainly a commitment. You won’t be able to buy a place and start turning a profit overnight. However, if you follow the above steps and put in the time and effort needed, you will be able to successfully establish your investment property.