Looking for the ultimate investment opportunity? Real estate is king when it comes to solid investments.
For the last 15+ years, real estate returns approximately 2:1 versus investing in the stock market. It’s a great way to invest your money and make money at the same time.
Now you need to decide what property is right for you. And that depends on what you’re looking to accomplish.
A rental property offers a unique mix of real estate investment and income production. Here’s a guide on how to invest in rental property.
Location, Location, Location
There are certain real estate investment basics that apply to any situation. And one of those is this: location is key.
Once you’ve decided on a location, it helps you narrow your search for the perfect property. So it’s important to start there.
That mean’s you’ve got to roll up your sleeves and do some research. It’s best to buy in an area that you know. And if you’re just starting out, pick something close to home.
Are you planning to buy a commercial rental space? Or a residential rental? These are good questions to ask while you’re doing your preliminary location search.
One tip is to pick a location that’s near an area with lots of traffic. Business parks, college campuses, and shopping areas are a great place to start.
It’s also a good idea to research your potential renters. This exercise helps you narrow down the type of property you want to buy. A retail rental tenant has different needs than a residential rental tenant.
If you’re near a college, you’ll want to know how college students rent. If you’re looking at homes near an elementary school, you need to know how families in the area rent.
Talk to local realtors to learn more about the preferences of the people you want to rent to. And reach out to other local rental property owners to get their advice. You can find local owners through social media and entrepreneur groups in the area.
Look at Lots of Properties
Now that you know where you want to buy and who you want your renter to be, it’s time to find the right property. Again, this is all about the research.
You may fall in love with the first property you see. But the best practice is to view at least 10 properties before you make a decision.
Your first step in property hunting is to hire a realtor. Doing the search yourself sounds great because it saves you money on realtor commission. But it’s not a good idea.
A realtor is critical because they know the market. They also have access to the listing systems. And they do all the paperwork that you don’t know how to do.
Make sure that your realtor has experience with commercial properties. Even if you’re buying a home to rent out, it’s still best to find someone with commercial experience.
A good commercial realtor helps you understand rental basics. They know what to look for in a good rental property. And they know the questions you need to ask the current owner.
Make Sure the Math Makes Sense
As part of your decision-making process, you need to get out your calculator. The math must make sense for you to consider a property.
Plus, the bank wants to see the math too. Any property that doesn’t cash flow won’t pass muster with the bank. And you’ll find yourself without financing.
No matter how big or how small you go, there are income and expenses associated with any rental property. The current owner provides these for you. And if they can’t provide them, walk away!
Put pencil to paper and figure out if it’s worth your time and effort. Think about how much you’d like to make beforehand and how much your time is worth. If the property doesn’t make enough money, you must move on.
Start Small, Then Go Bigger
A great choice for a first-time rental property owner is a single family home. These properties come with the fewest question marks. The financials are easy to figure out and they hold their value well.
Plus, you’ll only have one tenant and one home to maintain as the owner. And if it doesn’t work out, you can sell a house easier than you can sell other types of properties.
After you test the rental waters, try moving on to something bigger. Bigger properties carry more risk, but they also carry more reward if the math makes sense.
Two, three, or four family properties are an option. Or even a small apartment building could work. This website is a great resource to gather rental information on apartment complexes.
Also, you could try buying a commercial rental space. With the right tenant and a long-term lease, a commercial rental has the best opportunity to make lots of money.
Choose Tenants Wisely
Now that you’ve purchased your property, it’s time to fill it. The longer a rental property sits vacant, the longer it’ll take you to make money.
But don’t rent to just anyone. To choose a good renter, create a rental application that asks the questions that are important to you. There are lots of rental application resources online where you can find a good application.
Always ask for references. Do the work and call the references. Get to know your tenant through their application.
It’s not an easy process to evict a renter. So you always want to do your best to get it right the first time.
Once you find the perfect renter, always have them sign a lease. Again, you’ll find plenty of lease templates online to start.
Hire a Property Manager
Owning multiple rental properties is hard work. So if you do decide to buy more than one, hiring a property manager is a great idea.
When you hire a manager, you’ll go about it like you were hiring any other employee. Find someone with good references and experience managing properties. Check their references and hold a thorough interview to find out more about them.
It’s important to have a good rapport with this person because you’re going to work with them closely.
There are also larger property management companies that you should consider. If you own more than four properties, or a large apartment building, a property management company might be your best bet.
How to Invest in Rental Property the Right Way
Now that you know the basics about how to invest in rental property, it’s time to get out there and look.
Remember to pick a great location and learn about potential renters. Hire a realtor to help you search. And make sure the math makes sense.
Start with a manageable property to see if it’s a good fit for you. Then branch out to owning more properties. The more risk, the higher the reward!
For more useful tips, check out our real estate investment page.