Rental properties and real estate investments are all about making smart decisions and thinking out of the box with the available resources at hand. It is a great outlay as no beginning is too trivial and no venture is too large. No matter what the scale of your resources is, the opportunities are limitless. There are many benefits associated with owning a rental property, therefore, don’t let the fear of failure stop you from laying the perfect platform for your future investments. You will make mistakes of course, but that is how you learn and grow as an investor.
Rental properties and real estate – start with single family homes
There are many forms of rental estates which include industrial buildings, multi-purpose homes, office buildings, residential housing and many others. All of these have different sizes and prices. However, for starting investment options, it is better to consider single-family homes, as they offer the most rent with the least distress. Also, there are few basic things that you must consider before buying any property if you want it to be a worthy investment.
Before you start buying rental properties, specifically single family homes, you must consider living in it for a while. This means that it is a rental property from the very first day and most of the documentation for the property will already be taken care off.
Moreover, many crowdfunding forums have emerged which allow you to invest in any type of property you desire, with as little as $1000. Whether you want to invest in commercial real estate or a residential property, the crowd sourcing forums are a great way to start with minimum risk.
Pick a great location
A great location is key to the growth of any rental property. Any property that is close to major roads, universities, or public transport tend to have higher rental rates than others do. Do your research about other rental properties in the area you are interested in and you will know if the investment is worth it or not. Many people make the mistake of overestimating the worth of their properties, leading to vacancies. No one would rent a property that is higher than the market value unless you offer some extra perks.
Run the numbers
One of the most significant contemplations for real estate investors is to precisely estimate the rental income and the expenses associated with leasing or buying the property. If you are investing in more than one property, it’s important to treat each one as a separate business. Run the numbers individually for each property and estimate their rate of return.
Remember that rental properties should pay you at least 1% of the total investment for it to bring positive cash flow into the business. However, this is not a hard and fast rule and many commercial properties pay you a higher rate of return than that.
Correctly estimate your expenses as well while running the numbers. Insurance and maintenance are two of the potential expenses. Real estate often goes through ups and downs and vacancies come with the deal. Therefore, you must always allow for losing at least one month of rental income to such unforeseen scenarios.
Don’t spend too much on renovations
Don’t spend too much on renovations as it will need maintenance anyway. Frankly, renter will not treat the house as their own so there is a large likelihood of damages and repairs that you will need to make. Set out some minimum standards and always meet them but don’t go over them. You can also hire maintenance services for rental properties at an annual cost. They offer a warranty and the costs are spread out over the year, saving you the trouble of dealing with high maintenance costs.
General maintenance should be included in the rental agreement, however, major renovations of condos or townhouses should be done for a certain fee.
Appreciation market or high rentals
This is a critical decision you have to make while choosing a real estate demographically. Some locations have a very good appreciation rate for properties but the rentals are average. Other properties pay you high rentals but do not appreciate in land value over time. The right decision depends on many factors and your preference and long-term plans for the property.
Choose renters wisely
A final decision is to decide about managing the property. If you decide to manage it yourself, ask yourself whether you are prepared to stay on top of the tenants. With all of the benefits of owning rental properties, a troublesome occupant can make it really hard for you to manage it. Also, you should be prepared to deal with a variety of customers. Some will pay late and others will make unnecessary noise. If you are prepared to deal with these situations, get into real estate renting. If not, it may not be for you.
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