Purchasing and maintaining your first rental property is a big step. It can easily become overwhelming. When you are making such a large investment, there is a lot of pressure to ensure you achieve a positive cash flow in return.
There are many successful real estate investors out there. How do they do it?
Most of the rental property basics for success are likely things you can assume, but may not think about until you list them out and make them more manageable. As with any investment, long term success is about running the numbers and doing your fair share of research.
Residential Versus Commercial Investment Properties
Most first-time real estate investors will choose to purchase residential property, such as a single-family home or duplex. This is a smaller investment than purchasing an apartment building or office space (commercial property).
Other benefits to residential real estate include that it’s easier to secure investing, it’s a more familiar purchasing process to most buyers, and the path to finding renters is more straightforward. It is easier to manage one tenant than it is to maintain a building full of them or deal with the concerns of business spaces.
Choosing a Residential Property To Invest In
While there is certainly ongoing maintenance to make a rental property successful, most of the work for a financially viable rental is done before the purchase is ever made. You need to choose the right property to invest in.
The old adage about real estate is true: location is everything.
While many investors will choose to purchase something close to where they currently live, this may not always be the wisest choice and deserves careful evaluation.
If you want to manage the property yourself, as opposed to hiring a property management company that would take 10% of the revenue, you will want to be near by to handle maintenance emergencies.
However, you will need to run the numbers to see if this earns you the best returns in the long run.
When looking at a location, consider property taxes that will need to be added to your regular expenses. You should also consider the type of renters your location will attract. Will you be renting a property near a college campus? You will likely have more maintenance problems than a property rented to someone older. Are you renting to a family? In this case, what are the schools in the neighborhood like? The crime rate and job market are other important factors to take into consideration.
To have a profitable rental property, you will need to look at what your projected expenses are (mortgage payments, property taxes, and a healthy maintenance budget) and put that up against your projected income. Take a careful look at the average rent in your neighborhood and add in some time for the property to be empty while you find renters.
The more work you put in to finding the right property to invest in, the better chances you’ll have for a long term successful investment.