There are many challenges in the current real estate market and those who invest in real estate without being properly prepared may suffer negative consequences. If you’re interested in starting a rental property business, below are a few real estate investor tips to remember.
1. Get Finances in Order
This one seems obvious, but it can be more complicated than you think. Investing in an income property isn’t like purchasing a house; it can be much more risky. With an income property, you never know exactly how your tenants will treat the property and how much work will need to be completed throughout the year. For that reason, it’s extremely important to have personal financial stability and a low-interest loan on the property. To begin with, ensure that you have enough money to handle the ups and downs of a rental property. The first rule of financial stability in the rental business is ensuring you can afford the payments on a house without the rental income. You may not always have renters, and when you don’t, the bank still expects you to make payments on the house. You will also need enough money set aside for emergencies. When the pipes burst causing thousands in property damage the insurance won’t cover this, so you need to be prepared to foot the bill. At last, remember that when you run a rental property business, you are not running a home; you’re running a business. Therefore, it’s wise to have an separate account for your income property expenses.
2. Understand the Market
The real estate market is one of the most malleable markets in the country. It can go down at the drop of the hat, and it’s difficult to predict when it will go up again, unless you’re thoroughly immersed in the market. If you truly understand the real estate market, you know when it’s smart to purchase a property and when it’s best to wait for a better price. You can also gauge the proper times to raise rent prices. Overall, you’ll receive better returns if you can predict the market.
3. Begin with the Right Property
Almost every business requires that you start out low and work your way up, and real estate investment is no different. It’s important to begin with a solid property before finding a risky one. A Fox News article gives several suggestions for the type of rental properties beginners should consider purchasing. Some of their tips include:
- “Buy a property that you love.”
- “Skip the prize properties.”
- “Buy as a personal residence and change to rental.”
- “Buy properties in good shape.”
Each of these options are good suggestions for starters. Once you’ve mastered the simpler income properties, you can move on to another challenge, such as flipping, e.g. buying a shabby property, remodeling it, and reselling it for a profit
4. Managing Property
Managing a property isn’t easy. If you choose to be the landlord, it’s your responsibility to collect rent, keep the books, file taxes, screen tenants, handle maintenance, work out the insurance plans, write the contracts, and more. Many feel that they’re up to the challenge and try to handle the work themselves. For others, the task is daunting to say the least. If that sounds like you, you’ll probably want to look into hiring a property management company. A property management company can cost anywhere from 5-10 percent of a month’s rent, which decreases your return, but can be well worth the investment. There are many benefits of hiring a property manager including local knowledge, low turnover, legal knowledge, marketing expertise, and expertly handled maintenance. It’s not the right option for everyone, but many have found the time and money saving benefits to be worth the monthly fee.
5. Tenant Screening
Once you’ve taken care of the basics, it’s time to rent out the property. However, it’s not wise to use a first come first serve basis with tenants. You need to be sure that they’ll pay the rent every month and treat your property respectfully. This requires a certain screening process which will allow you to find great tenants. Furthermore, be prepared for the tenant to screen you as the best tenants are prepared with the right questions which is a sign of their dedication to the property. Getting a handle on the income property business will likely be more challenging than you think, but once you’ve mastered these basics, you’ll be ready for the next important business step – making a profit.