Investing in Rental Property for Beginners
For those looking to get started in rental property investment, it may be hard to know where to get started. Sure, the process seems relatively simple on the outside—you may event think you have a fairly good grasp on the process—but where do you actually get started? Should you just call up your local real estate agent and wing it? Do you surf the internet for companies that handle properties in other states? And, what is this turnkey thing you keep reading about?
Investing in real estate is almost always a great way to capitalize your money and be safe with your investing—as long as you know what you’re doing. When it comes to an investment with such a high price tag, “winging it” should never be the route you take. Long before you take that very first step down the rental property investment road, you need to do your due diligence.
Advantages of Investing in Rental Properties
Investing in a rental property is one of the most popular ways to profit through the real estate market. Most investors favor this method as it is a simple way to provide a continual monthly cash flow. If you utilize a mortgage as a way to purchase the property, using it as a rental will allow you to pay down the costs without having to tap into your own funds while still collecting a little extra to pad your own pockets. As the tenant essentially pays down your mortgage for you, the equity in the home increases, allowing you to borrow against it to purchase a secondary rental property, and so on.
When it comes to investing in rental properties, research is vital—and it shouldn’t stop if you hire professional help or purchase a property, either. You need to research everything if you’re going to avoid any costly mistakes. This includes thoroughly researching the area you’re looking to invest in, the realtor or property investment company you decide to use, and any potential property’s history. If you’re going to use a bank to finance your initial purchase, double check rates and benefits of several banks. A little bit of research on any decision you make when investing in real estate will go a long way in ensuring your investment is safe, secure, and profitable.
You’ve heard the saying, “Location, location, location,” but have never really understood the significance of it… well, once you enter the real estate rental market you will! When it comes to finding a successful rental property, location is the most important factor. It doesn’t matter how affordable or deal-worthy the house is in your eyes—if it isn’t in a good location, you’re going to have a hard time keeping renters. When considering a location, look for several factors such as the school zone ratings, the crime rate, and how close local amenities are. Find out what the largest income-producing industry is in the area (such as a hospital, power plant, or car dealership) and try to find a property within a reasonable drive. Nobody wants a long commute to work, so if you’re looking to keep decent tenants, you want to be near the biggest industry in the area.
Keep an eye out for areas that will be redeveloped in the near future. If an area has a shopping mall in the works or a new highway being built through, you might be able to snag some great properties that will be in great demand as the projects are completed.
Another factor to consider when analyzing location is economic structure. If the area doesn’t have a sound economy, you’re likely to experience difficulty in securing and keeping good tenants.
No matter how much you may want to see the good in people or believe that bad things won’t happen, the fact of the matter is that sometimes things go wrong. When putting yourself in the position of landlord, you need to ensure you’ve laid out some precautionary protections for yourself, your income, your assets, and your family.
It’s generally suggested not to purchase property under your own name, but rather, by utilizing an LLC (Limited Liability Company) or a Limited Partnership. By doing so, you are legally putting a separation between your personal assets and that of your “real estate business.” In the event of a lawsuit (whether someone slips and falls or a major default was overlooked in the home, such as faulty wiring or shoddy repairs) than your 401K, Roth IRA, retirement account, and other such savings will generally be safe.
Always consult with a legal professional before making any decisions regarding the entity to purchase your properties under, however, as each circumstance is different.
A great way to accumulate a passive income from monthly rental payments is to invest in what is called a turnkey property. A turnkey property is, essentially, a property that has been purchased, renovated, and rented before you even take ownership. These types of property are often handled by property investment and management companies which are able to carry on the process of managing the property even after you take ownership (for a monthly fee, of course). This allows you to purchase properties in areas of higher rental demand instead of having to strictly stay local. This, in turn, allows you to better capitalize on your investment
Strategy Properties provides only the highest quality turnkey properties on the market. We thoroughly research and evaluate every property before adding it to our investment portfolio. Renovations and remodels are completed by highly reputable, licensed contractors, and tenants are selected through a rigorous selective process. Strategy Properties can be a valuable asset when analyzing locations. We understand what works in this market and are able to provide you with the information you’ll need to make an educated decision on which area to invest in.
Rental properties are a great way to get started in the real estate industry. They can be active income (meaning you partake in the process of operating the rental) or passive income (meaning you are essentially hands off), which gives you the freedom to take on as much or as little as you feel comfortable doing. Rental properties also provide viable, stable monthly revenue and often present a greater return on investment than other forms of real estate or general investments. Just be sure you do you research, work with a team of professionals, and understand your market—and you’re bound to do just fine! Don’t forget, you don’t have to start this process alone. Strategy Properties knows the industry and is looking to help you on your journey through the real estate investment market.