To say that investing in rental property is promising, would be an understatement – many of the wealthiest people worldwide have rental property investments to thank for their riches.
But while buying a rental property is lucrative and rewarding, it is also a significant investment that should be made smartly and with caution.
In this article, we will discuss some essential tips for people looking to invest in rental property.
1) Get rid of personal debt:
Where some seasoned investors deliberately include debt in their portfolio investment strategy, average people looking to invest in property are usually better off without debt. If you have liabilities like medical bills, student loans – or have children who might soon be attending college, it might be unwise for you to invest in real estate at this point.
2) Be clear about your financing options:
Should you decide that investing in real estate is the right option for you, you should carefully weigh all your financing options. Decide whether you would like to go with a 15-year or a 30-year mortgage and if you would prefer adjustable or fixed rates. Make sure that you understand the real cost of your financing choice.
3) Understand the down-payment requirements:
Investment properties, owing to their more demanding approval requirements, need far larger down-payments compared to owner-occupied properties. The 3 to 5 percent that you have placed on your current home will not work for an investment property; you will need to make an upfront payment of approximately 20%.
4) Start by investing in single-family homes:
Investing in single-family homes is the most straightforward way to step into the real estate investing arena. Since you will have a single tenant, the upkeep will not be as demanding as with multifamily homes or commercial properties.
5) Choose the best location:
You certainly do not want to be stuck with a property in an undesirable area. Investing in a region with an increasing population and underway development plans will allow you to gain a generous ROI (return on investment) within a few years.
Secondly, you will want a location that has ample amenities like parks, restaurants, malls, and movie theaters, as well as a district school and low property taxes. Additionally, if the neighborhood has easy access to public transportation, a flourishing job market, and low crime rates, you have a far greater chance of attracting a large pool of potential renters.
6) Conduct thorough screening of potential tenants:
If you want to make your initial property investment a success story, it is essential to involve a property management firm that can perform the necessary tenant screening. Your property management firm will be able to verify aspects such as previous addresses, eviction history, and criminal background. It is easy to be hasty and impulsive while looking to land your first tenant, but you will not want to rent your property to someone who has a questionable history. It is always best to have someone who has experience in screening complete this part of the process as well as the actual leasing, rent collection, maintenance, and tenant retention.
To conclude, it is important to understand that, like any other investment, real estate is not going to make you wealthy overnight. You need to pick the right property, have realistic expectations, and be patient.