When investing in real estate, becoming a landlord can be an excellent option. In today’s market, the number of renters is on the rise, thanks to the 2007 collapse of the housing market. This is why you should consider (if you haven’t already) rental real estate investing. If you are ready to entertain the idea of becoming a landlord, consider these tips on getting started!
Tips on Creating Income from Rental Real Estate Investing
1. Start small
It is best to begin with one house or a small, multifamily unit to determine if this is the area of the real estate investing world that you want to dabble in.
Also look for a property without elaborate or high-maintenance features that would require extra work on your part. This is fine for the long-run, but in the beginning, it is best to start small.
2. Invest in Familiar Locations
As is true with all real estate property, don’t invest in an area you are unfamiliar with just because the price is right. You may find that the area isn’t a place that renters would want to live.
This means you should only invest in areas you know well and are local to you. It is fine to branch out (even out-of-state) once you know that rental real estate investing is what you want to do, but while you determine whether you want to tap into your inner landlord or not, it is best to stay local.
3. Determine Rental Numbers Wisely
Keep in mind that rent differs by location. The cost of living in California is much higher than the Midwest. Check out local rental sites and craigslist to determine the average of what rentals go for in the area you are considering.
It is also important to keep in mind insurance and property taxes. Too many first-time rental real estate investors think if they cover their loan that they are doing well. You need to calculate in more than just that in order to make a profit and to cover costs!
Be sure to budget in for the following:
- Monthly mortgage payments
- Property taxes
- An additional 5% of gross rental income for maintenance
- 5% more to cover downtime from vacancies and repair
Also, keep in mind the rate of return. Look into the “capitalization rate” to help you understand what you are getting on your investment. You may instead want to talk to an accountant with this step.
Consider Managing the Property Yourself
One of the greatest ways to begin down the road of rental real estate investing is to be willing to get your hands dirty. If you can fix a leaky faucet or patch up a hole in a floor yourself, it will be to your financial advantage with your first property.
You also may need to be willing and able to deal with seeking out rent checks when tenants fail to pay.
There are other options, like hiring a contractor or outsourcing client relations to a property management company. These are better for down the road, however, once you have decided to dive full-force into rental real estate investing.