The path to deciding to invest in rental properties can seem overwhelming. It’s important to keep sight of the goal and take each step of the journey one at a time. This is not a financial guide to investing in rental properties, but rather a guide to choosing rental properties.
The first step to consider is location. The location you choose impacts the cost of the property, the amount you can charge for rent, and the tenant type. For example, if you are looking for rentals in a college town, the cost of the property will likely be higher than in a more rural or bedroom community. You will also be more likely to charge a higher rent. And the tenant type will probably be students, as opposed to families. Rural housing is usually less expensive but also brings in less rental income whereas urban housing prices and rental rates can vary significantly by neighborhood. Once you’ve determined the location, you need to determine the rental type.
The type of property you choose to invest in could be a home with a rental space in a spare room, basement, or over-garage-space, an entire single home, duplex, apartment complex, or even a tiny home. The more tenants you have, the more management is likely needed. In an apartment complex, you have multiple sets of appliances, water heaters, and furnaces to ensure are functioning properly. So, when determining which style of property to buy, it is important to consider the amount of time you have available to manage your properties.
You know where you want to be and you know what property type you want. The next step is knowing your budget. Will you be buying the property outright with cash? Getting a mortgage? How much will your down payment be? There are benefits to both options. Mortgage rates are at near historic lows, meaning the cost of a home loan is low. It may be advantageous to get a loan, even if you can pay cash since the rate of return on your money in the market could be greater than the cost of the interest rate on the loan. Consult your financial advisor for more information on investment strategies.
The last step is choosing a property. Is it turnkey and ready to go? Does it need a little work? A lot of work? Turnkeys may cost more upfront than a property in need of a lot of work, but the benefits are that you can get a renter moved in faster and start earning income. It should go without saying, but if you’re looking at investing in rental properties, you need to make sure the monthly cost to own and maintain the property is sufficiently less than the rental income to make the investment worthwhile.
There you have it. That’s the quick-and-dirty on choosing and investing in rental properties. There are several financial benefits as well, and we encourage you to speak with your financial advisor about them.
Hire an Expert
The purpose of purchasing a turnkey property is to generate a profit without all the heavy legwork. Most things are taken care of, but unexpected hassles can bring about unnecessary stress. For example, some turnkey properties come with a tenant, but others don’t and finding a suitable tenant can be difficult, but a local property management company can screen and secure qualified tenants for you.
Invest in a property management company that offers a range of services and provides a team of supporters that make the buying process smoother. A full-service property management company can help with property maintenance, direct rental payments, online accounting, and other services that are helpful to investors like you.