|search engine by freefind|
If investing in rental properties wasn't wise, then you need to ask why are there so many landlords?
Lucky few? I don't think so. If you visit any REIA meeting you'll have the experience of seeing first hand how investing n rental properties pays the bills... and then some.
Unlike past years where investing in rental properties was straightforward, this year could be a game changer with lower interest rates hanging in there. Property values climbed in record percentages, yet rents for tenants remained stable. With all that going on, tenants just might be turning into homeowners.
With each recession, and with rising property values, more people choose to rent due to a myriad of circumstances over buying their primary home. The upcoming year will be terrific for investing in rental properties. I know I'm looking to increase my portfolio.
Yes, it's going to be a win for landlords. You can make money with real estate through rentals, or explore some Owner Financing by helping your tenants become homeowners in the place they love.
Just like most things in life, owning and managing investment real estate has its ups and downs. There are some things, like hiring a property manager and knowing dependable plumbers, etc., that can make your landlordship a dream come true.
One of the most common traits among people who are actively investing in rental properties is that they genuinely like people. Maybe not dealing with people everyday, but they authentically like helping others and derive a great satisfaction from doing so.
Those who are in it just for the passive income that owning rental property promises, soon find that the day-to-day management is more of a chore than a pleasure. And if you can't take care of your tenants, they are going to move out.
But, there are many ways to overcome most of the unfavorable aspects of owning multiple rental units, and good practices to keep your tenants happy and in for the long run.
A quick search online brings up a recent house that sold for $179,000. The picture on the right is the house right next door that is for rent, asking $1,150 month. Now to be precise, these aren't really comparing apples to apples, because the house that recently sold is a 2br, 2ba -- and the rental is a 3br, 1ba. However, finding two examples next door to each other is incredible, so we'll go with this. Your own search will be focused on your desired area.
Let's look at the numbers with this deal:
If you were to obtain a new mortgage, 70% of the sold price (125,300) and were offered 4% interest rate for 360 months (30 years, standard), the payment would be $598.20 month.
Now let's add in 10% of our payment amount for reserves, taxes and insurance = round up to $60. Total payment would be $658.20 per month.
With this example, your monthly would be:
$1,150 - $658.20 = $498.80 PROFIT every month.
Not every area in every state will cash flow like this, you may need to go a bit farther out. The study above was taken from Greer, SC 2020, a good sized city near a bigger city. In Albuquerque, NM investing in rental properties is a bit more of a challenge, since much of this big city doesn't demand much more than a mortgage payment for rent. You just need to be creative. Albuquerque is a ripe area for owner financing, but that's another topic.
If the rental property passes the first test above (brings in more income each month more than you'll pay out), it's worth consideration.
But don't get sloppy on the due diligence (property research). Get to know the history of the property, and you can get that info online with your county's register of deeds. And while you're at it, check the county tax assessor, too. The more details you have, the wiser decision you'll make.
Talking to other landlords you'll get a wide range of ideas. Some work, some are lame. That's because not everyone thinks alike, which is good for you.
The most important thing to consider is your time. Time management can get away from everyone. Once you have a bird's eye view of how investing in rentals will impact your lifestyle, it's time to get down to some real planning strategies.
There's a new buzzword among investors, BRRRR -- even through the rental property strategy isn't anything new. If you think the Buy Rehab Refinance Rent Repeat strategy is for you, learn more about BRRRR here.
What I like best about investing in rental properties is the passive income it brings. Every month. Count on it.
And rental income is passive, not earned income. That is excellent as far as income taxes go, since you can write off most things related to your investment. Plus, depreciation on any major improvements such as a roof or new heating and air system.
Real estate appreciates. What you pay for a property today is far less than what you'd expect to pay next year. In 1976 I purchased a 660 sq ft condo in Redondo Beach for $24,000. In 2020 that same condo sold for $875,000 (wish I had kept it!).
I can drive by my rental properties and see how my investments are doing. That's something you wouldn't so with stocks or a bank account.
Make a game plan and decide how you plan to take care of the rental property:
Managing rental properties isn't for everyone, it helps to be a people-person. Don't be surprised if you are called upon to solve issues (even other than maintenance) with your tenants.
I enjoyed managing my own rental properties, but when I moved away from the area, I hired a property manager to take over the landlord tasks. Even though it costs another 10% off the top.
Everyone has their own tolerance, but personally, if you have more than three investment properties, a property manager is worth a serious discussion. I see that now in hindsight.
Back when I was managing my own rental properties, had two houses right next door to each other. Both and similar in size and amenities. In the first one, the original tenant was there from the day after I purchased it until eight years later, when I sold both properties. In fact, we still keep in touch.
Now the other house had multiple tenants, two of which were troublesome. When someone says negative things about investing in rental properties, I suspect they had tenants like these. It was as if the house had a revolving door! To this day I cannot see why one was a delight and the other more trouble.
Do you have an idea of where you'd like to be with your rental investment(s) a year from now?
Some investors start off with just one property, maybe down the block from where they live, that they can use as a short-term rental, such as an AirBnB. Having a simple strategy and seeing how it goes for the first year or six months is prudent.
Investing in rental properties that are turnkey are a good way to get started. You won't make as much money, and it will cost more since you will be paying pretty close to market value for your rental, but having a tenant in place will save you time. And time is money.
A turnkey rental property is a rental house (or mobile home) that is in good repair with a tenant already living in it who is paying rent. It's an excellent approach to getting your feet wet investing in rental properties. Because if it doesn't work out, it's easy to sell it to another real estate investor.