The Beginner’s Guide to Buying Rental Properties
by Mashum Mollah Real Estate 09 April 2019
Buying a rental property may appear to be a simple idea. However, you can easily get caught up in the details once you are ready to take the plunge. Several people take a lot of time to research on this topic without taking any action. Don’t allow yourself to fall under this statistic. Do your due diligence but you should not procrastinate when it comes to taking action. You will achieve your financial freedom faster once you buy your own rental property.
When you decide to invest in a rental property, you will be putting your money to work today and then allow it to increase so that you will gain financially in the future. The returns or profit that you gain will cover the risks, taxes, and costs (insurance, regular maintenance, and utilities) that come with owning real estate. Therefore, buying a rental property is one of the wise investment decisions that you can make. You can gain a lot of insights from this beginners’ guide to buying rental properties.
Four Ways to Make Money as a Real Estate Investor
There are several ways to make money as a real estate investor. These include;
Appreciation of Real Estate:
Changes in the real estate market will make the value of your property to increase. The land around your rental property may become busier or scarcer when investors build a major shopping center in your neighborhood. It will make your property more attractive to renters and potential buyers. Appreciation of real estate is a tricky game that needs seasoned players. As a beginner, it is safer to invest in rental (cash flow) income.
Cash Flow Income:
This investment in real estate focuses on purchasing a real estate property like an apartment and then operating it so as to get a stream of rental income. It is the money that tenants pay to use your property for a specified time period. You can generate cash flow income from rental houses, office buildings, apartment buildings, car washes, and well-run storage units. Buying rental property is a wise decision for any beginner.
Real Estate Related Income:
This is income that specialises in the real estate industry like real estate brokers generate. These professionals make money in the form of commission from selling and buying of properties. Real estate companies will also get a proportion of your rent by running the daily operations in your property. It is not hard to understand this kind of real estate income.
Ancillary Property Investment Income:
In some of the real estate investments, you can generate huge profits from these activities. The ancillary real estate income entails things such as laundry facilities in the low-rent facilities and vending machines in the office buildings. Thus, they act like mini-enterprises in bigger real estate investments and hence you will generate income from the semi-captive collection of clients.
Tips for Buying Rental Property
There are several approaches to buying rental property. First, you can use debt to buy a rental property by taking a mortgage. Using leverage attracts so many investors in the industry because it can help you to acquire a property that you could not have otherwise afforded. However, it can be dangerous to use leverage in buying rental property. In a market that it falling, the regular payments and interest expenditure can drive you into bankruptcy if you are not careful. Therefore, you have to make sound decisions whenever you are buying a rental property from debt.
You can buy the real estate property in your name. However, for purposes of risk management, it is better to hold your real investments via special types of legal bodies like limited partnerships or limited liability companies. You need to consult with your real estate attorney to determine the best ownership method for your case. This way, if someone slips and falls or your real estate investment tends to go bust and result in a lawsuit, you will be able to protect your personal assets because the worst that can happen in such circumstances is losing the cash you have invested in your property. It is one of the most important tips for a beginner in the real estate industry.
It will give you a sound rest at night because unless you have screwed up another person, no one will touch your other benefits like the retirement plans and other investment programs. Once you are ready to invest in the real estate industry, you have to decide the best investment option for your case. Here are some tips to put into consideration while buying rental property.
1. Set a Clear Goal
It is paramount to know your end. Exactly define what you would like to include in the actual number of rental buildings. If you feel like you require some help, you can get some professional guidance on the number of rental properties you will need you will need to cover all your expenses.
2. Find Your Property
There are several ways of handling this task but in all depends on what you would like to have. You can go through the listings to get seller-financed properties, work with real-estate brokers, or identify off-market properties. Choose an approach that will best meet your needs.
3. Calculate the ROI
You must have a clear picture of the numbers that you are looking for and ensure that your property is meeting the desired standards. You can get double-digit net ROI on the property that you are buying.
4. Take Action
This step is critical and it sees you swing into action. However, no one is ever 100% sure of the action that he is taking including the pros. Do not allow small hesitancies or fear to hold you back. If the numbers are making sense, all you need to do is take action by buying rental property.
5. Get Inspection
The inspection will help you to establish the type of renovations that you should put on the property to complete it. The step is critical if you want to increase the phase value of your property and maximize the monthly returns in the form or rent payable.
6. Find an Excellent Property Management Team
It is highly beneficial to work with property management companies. You can get a lot of success from the input that these professionals bring your way. Evaluate how they vet potential tenants, collect rent, and take care of your property. Get a reliable team that you will be able to work within the long run.
7. Rinse and Repeat
After you buy your first rental property, you can begin over again once you are ready for your next property. It will help you to grow your investment portfolio and get the much deserved financial freedom.