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With investors getting tired of general market fluctuations, more people are looking into owning rental real estate. Earning money is a tough business and investing money in stocks can be even tougher when the market is down. More and more investors are realizing that stocks and shares aren't the only way to create wealth and are finding rentals to be a good way to build wealth, especially when financial markets are down.
But the real work begins once you decide to buy a rental property. Finding a lucrative property takes time and plenty of research. If you are willing to do the research, financially commit, and spend some time maintaining the property, then owning a rental property might be the right endeavor for you. There are many property types available and it helps to learn the rules of renting before you take on the responsibility of maintaining a home or unit.
How to Find and Buy Rental Properties
Before investing in real estate, it can be beneficial to learn a few pointers that will help you get started:
You'll need to assess your financial goals and requirements. You should have a set timeline for how long you plan to own a rental property. The length of this timeline will depend on whether you're looking for a steady income from the rental or whether you're planning to sell the property for a profit in a specified number of years. If you're planning to own the property for a long time, then you'll need to be prepared to invest in its repairs, maintenance, and in improving the condition of the building. Long term ownership also means that you'll have time to wait out any swings in the market. However, if you plan on investing in the property for a short time, then it is recommended that you look for lower priced rentals that you can repair and maintain as you rent out the property.
Be Financially Sound
It always helps to be financially sound so that your prospects of getting a decent loan are not hindered by any inaccuracy on your credit report. Having a smaller amount of credit card and consumer debt can significantly increase the chance of getting approved for financing and can even help you qualify for favorable interest rates. Having a substantial cash reserve leftover after buying the rental property can help to pay for unexpected vacancies and repairs.
Spend some time researching any potential rental property that interests you. Select your property based on the location and condition. If it's close by shops, parks, recreational centers, work places, and decent schools, it will be more appealing to renters. If the property is also in a well-kept neighborhood, then you might not have any difficulty finding renters, and you may be able to get higher rental returns if the area is in demand. It's important to check and see if there are any rental restrictions with home owners associations involved with the property.
Meet the Neighbors
If you are interested in a particular area, you can ask those in the know if they have heard of any complexes or houses for sale in the neighborhood. It helps to develop networking skills with business owners or landlords who know the local real estate market intimately. An easier way to research property is online. Rent.com can be your online source for finding rental properties for single family homes, duplexes, apartments, condos, or townhomes. You can search for a rental property based on your budget and area of interest.
Purchasing rental real estate should allow for a sufficient profit margin, however you may not have full occupancy all of the time. Set a maximum amount you are willing to pay for your property so that the leftover amount can mitigate a few unforeseen expenses. If you pay too much for a property, it becomes difficult to recoup the amount and make a profit. The harder the bargain you drive, the better your chances of making a profit.
One cost-effective way of buying rental real estate is by checking out properties that are in tax foreclosure. You can wait for the tax sale to take place, and then contact the owners directly during the one year grace period following the tax sale. A number of owners in this situation could be willing to sell you their property just so that they could move on with their lives. There are other subsets of owners that could be willing to sell their property for a cheaper rate. These owners could be disinterested in the property either because they are reluctant inheritors of the property and want to get rid of it or they could be disgruntled landlords who didn't know how to turn their complex into a profitable business.
Benefits of Rental Real Estate
One of the most obvious advantages to owning a rental property is that it is a tangible asset. Other benefits include:
Rental Returns: You can earn a monthly income by making your property work for you. By renting space, you can earn money that will pay for the mortgage, repairs, and maintenance of the property and still have some leftover money to spend or reinvest as you like.
Appreciating Value: Property values typically increase over a period of time, although the appreciation value cannot always be guaranteed. Any property in popular neighborhoods or even sparsely populated areas can appreciate over the years, making property a good long term investment.
Tax Benefits: If you do not receive net cash flow after deducting the expenses like mortgage payments and maintenance, and end up owning more of the total value of the property, then your income from rent can be tax free. After selling a property, if you plan to reinvest the money in another property, then you can benefit from a tax-free exchange. You also can refinance your loan if the interest rates fall, and the real estate market appreciates.
Types of Rental Housing
There are a few different kinds of rentals that you can search for on Rent.com. Depending on your needs and preferences, you can choose from a variety of rental options. Some of the options include:
- Single Rooms. Single rooms are offered for rent in a multi-room facility. Residents typically end up sharing kitchen facilities and common areas.
- Duplexes. A two unit apartment building or condominium.
- House Rentals. A furnished apartment or house that is let out to tourists on a temporary basis as an alternative to hotels.
- Apartments. These typically consist of three of more units in a building. Each unit has its own kitchen and living area.
- Townhomes. A townhouse is one of a row of homes sharing common walls. They usually consist of multiple floors and are individually owned.
- Condominium. A complex of dwelling units which are individually owned. These units can be rented out, if permitted.