How to be Successful in Investing in a Residential Rental Property for Beginners in 2021
One of the best ways to earn a decent income is by investing in a residential rental property. However, real estate investment does not only involve purchasing property and just watching while everything works itself out; there is quite a bit that is involved. Before you invest in a residential rental property, there are certain fundamentals of buying such properties that you must be familiar with. Without a proper understanding of these basics, your business might not be as successful as you would want it to be. This article contains important information for people who have plans to venture into rental property investment for the first time.
Why it is a Good Idea to Invest in Rental Property
When you invest in rental property, there are two types of returns that you can expect. The first return is in the event that the property value of your investment increases and you are able to make substantial improvements to the property, the property will actually appreciate in value in the long run. And, if you manage to pay down your mortgage, your investment can also provide appreciation with time, therefore increasing equity. It is always a good idea to invest in something that has the potential of appreciating in value.
Second, there is a potential of profiting from an ongoing return via positive cash-flow; that is, rentals from tenants which exceed your monthly expenses for maintaining the property.
Earning Passive Income
Many people, especially those who are nearing retirement age, are looking for ways to earn passive income, and one of the best ways to earn passive income is by investing in rental properties. Passive income refers to money which you earn without investing your time into a business every single day. Before you can start earning passive income from rental properties, you have to be willing to do a lot of work upfront. After that, your main goal will be to ensure that the property is well maintained; and, that does not require much of your time.
Where to Start
If you have plans to become an owner or manager of rental properties, the starting point is to conduct a lot of research concerning the area which you plan on purchasing the property. You can start by checking the rental units that are available in the area. That should give you a rough estimate of the rentals that you can charge.
There are also certain laws that must be adhered to by landlords that you need to be aware of. The housing laws that landlords are expected to be familiar with are different in each state. That means you will have to find out the housing laws that are specific to the state which your rental units will be in. It will be in your best interest to ensure that you do not breach those laws if you want to avoid getting yourself into serious legal trouble.
There are several criteria that have to be considered as you look for a rental property to invest in. If your main aim is to invest in a property such as a single-family residence or a condo, the best thing to do is to search for the property in a neighborhood or community with properties which generally appreciate in value. When it comes to location, there are several factors that you have to consider, including:
The whole idea behind investing in rental properties is to make good money from the investment. As such, you have to make certain that you purchase the property in a good neighborhood. The neighborhood that you ultimately opt for will have a big impact on the type of tenants that will be living in the building, as well as how often the property will be vacant. For example, if you choose a property near a university, it will attract mostly university students. It also means that the property will probably be vacant during school holidays.
As you look for the ideal property to invest in, you should consider the fact that your potential tenants may have school-age children or they may have plans to have kids in the near future. That is why you have to make sure that you choose an investment property that is near good schools. Take time to find out whether the schools have a good reputation. If your property is in a location where the school or schools are not reputable, that may have a negative effect on the value of your investment property.
The issue of crime rates should be taken seriously if you have plans to invest in residential properties. This is because an area that has crime rates that are generally high will affect the value of your property. And, even if you purchase an investment property in a good neighborhood, as long as that particular location is close to an area that has high levels of criminal activity, your property value will be negatively affected. The fact is people generally don’t like to stay in a neighborhood that is near criminal activity hot spots. So, you should not base your decision to buy the property on what you are told by the seller. Instead, get the correct crime statistics of the area that you prefer, as well as the surrounding areas from the public library or from the police.
Another important consideration when buying rental property is conveniences. It is important to make sure that you purchase the property in a neighborhood or an area that has most of the amenities or conveniences that people generally want. Even though you may find people who do not have a problem with staying 15 miles or more away from their workplace or shopping malls, most people prefer to stay close to their workplace, shopping malls, gyms and public transport hubs. If you are going to invest in residential rental properties, you want to make it a point that you purchase a property in an area where people actually prefer to live in.
Investing in residential rental properties requires you to have adequate knowledge of the rudiments of buying residential properties. The type of property that you buy and where you buy it will determine whether or not you will benefit from your investment, and it will also have an impact on the value of the property.