If you’re thinking of getting into rental properties as an investment, there’s a lot to know. Some of it is obvious, some not so obvious.
Learn The Ropes For At Least 6 Months
Real estate is one of the most complicated investments you can invest in, so it’s a good idea learn the ropes for at least 6 months – preferably with a professional. Talk to other people who own properties, ask if you can shadow them, read books, go to local real estate investment clubs, and ask questions.
The better you educate yourself, the less risk there is of you making a mistake or a bad investment in a property. Of course, you can’t totally eliminate risk, but once you’ve seen a real estate transaction go down, and you understand how to buy the right kinds of properties, that risk is dramatically reduced.
Likewise, if you never take the time to go through the process of seeing a property being purchased, and you don’t understand how to research a property, it could end up destroying you financially.
Invest In The Property
Don’t buy a property with the assumption that nothing ever needs to be done with it. Sometimes, you get lucky and you don’t have any serious maintenance to do. But, this is more uncommon than common.
Major repairs, like HVAC systems, water heater replacement, and roofing patches or repairs should be dealt with quickly.
You can head off a lot of major problems by getting some of these HVAC products before an entire system is needed, hiring a local company to inspect your HVAC unit, hiring a contractor to assess your roof, and making sure that you maintain the water heater (they usually last about 10 years).
Aside from that, plan on investing in paint for the home, maintenance for pretty much everything in the house, and upgrades that will help lower ongoing costs over time. Of course, renters will help offset some of these costs, so you should be willing to charge a rent that helps cover maintenance.
Invest excess rents above your mortgage payments to help hold down those maintenance costs.
Buy Properties That Require Little Maintenance or Repair
Of course, the best strategy for reducing maintenance and repair costs is to buy a home that’s in relatively good shape. This can be easier said than done, but there are many homes and apartments for sale that have been kept up where the individual simply wants to retire or move out of the area and doesn’t want the hassle of maintaining a property from out of town.
Stay Away From High Vacancy Cities
High vacancy cities or towns are bad news. It means that there are not a lot of renters. Rather than following real estate trends, choose towns and cities where long-term growth is steady. It’s not as exciting during economic booms, but it’s a good backstop against recessions. Vacant rentals create negative cash flow.
Skip “Prize” Properties
Every locale has them – prize properties. These are properties that look terrific when you drive up to see them. But, they have a glaring weakness: negative cash flow.
In real estate, negative cashflow can be dangerous. Stay away from these types of properties. Always strive for positive cash flow properties, even when your property doesn’t look the best or isn’t in the best neighborhood.