How to Invest in Real Estate Rentals
Updated: Oct 23, 2022
Have you ever heard your friends and co-workers discuss all the benefits of the properties they have invested in and wondered if it’s for you? Not sure where to even begin? Don’t worry, you have found the guide you have been looking for to help you get an idea of the process of investing and what areas you might need to do a little more digging into before making that final decision.
Property Location & Situation
Before you do a deep dive into all things investing, first look at what you are looking for in a property. Are you looking for it to be a location for the everyday family to live in or vacation home families will rent out in specific months of the year?
When investing in a property with an everyday location, you will need to decide if you will be living on the property and renting out rooms or are you going to decide on a fix and flip. For a vacation spot, think hot and cold. Are you wanting a place full of sunny days escaping the snow or one that avoids your tires melting to the asphalt in 110-degree heat? Your answer to this question will help you narrow down if you are looking for an in-state or out-of-state property and what seasons you will have possible tenants.
Your Financial Picture
In the time leading up to purchasing your property, you need to make sure you have the financial means to back up your purchase. You will need the 20% down plus 2% to 5% for closing costs. You will also need the money for any maintenance or fixing up that may need to happen. With any home purchase, taking a close look at the mortgage rates and interest and understanding the effect on monthly payments is vital. How your financial situation stands now will impact purchasing another property. Other aspects to consider are your debt-to-income ratio, the equity in your current property (because it can aid in the 20% down payment), and if you would be able to afford both mortgage payments if needed.
Housing Demand - Timing the Listing
Once you have decided what type of property you want to invest in, you will need to investigate the housing market. You will need to figure out the best time to buy your property and the time it will need to be ready for tenants. You may be looking and buying the property at a low part in the market to have it move-in ready for the competitive season.
Managing the Property/Being a Landlord
There is more to being a landlord than collecting rent and making sure the house stays in good shape. Before tenants, you need to get landlord insurance and have a legal lease drawn up by a Real Estate lawyer. Also, think about how you will advertise your property; by yourself or will you hire.
Since you might be already researching the best people for managing your advertising, are you also going to look for the best agencies to manage your investment property as a whole? If you decided you would like to have a vacation rental in a state that you do not reside in, having someone close by to handle both small and large situations with the house is the way to go. Whether it's fixing the porch light fixture or replacing the water heater that went out, being out of state will prove its challenges. The other side of having someone manage your property could be that you simply want help managing.
Realistic Expectations of Purchasing Investment Property
After you have made all the needed arrangements and spent all the necessary money, it is time to keep realistic expectations. No matter what property you decide to do, unforeseen circumstances will occur. There will be gaps in tenants that may last a few weeks or even a few months for the seasonal destinations. It is best to have separate savings to cover these times. It is also wise to expect late payments. Whatever reason your tenant may have for this, know you will need to be a little flexible. Remember your property is someone's home and that repairs and accidents happen that will need attention. Planning and having separate funds able to tend to all investment property needs will help alleviate some stress and frustration.
Contact Grimm Realty Group - Investment Property Experts
If you find yourself wanting to invest, but the numbers just don’t quite add up consider asking friends and family. There is no cookie-cutter way to invest other than you need the money to do it. Don’t be discouraged if you need to start off you need to go with a condo instead of the desired beach house. Investing is a long game, and you just need to decide if and how you want to play it that will still leave you comfortable at the end of the day.
With nearly 20 years of experience, Doug is excited to help new & experienced Investment Property Owners through every step of the process. From suggesting Property Management Software to guidance on types of funding, we work with you to ensure your needs & goals come to fruition. If you’re looking to sell an Investment Property, we can provide a Complimentary Market Analysis with a full Comp report, advice on repairs & upgrades, advice on timing the sale, & the quality of local competing properties.
Schedule a Zoom Meeting with Grimm Realty Group to discuss your Investment Property needs!
Agent & Investor Partnerships Sources:
Investopedia: How to Invest in Real Estate Rentals
Forbes: How to Invest in Rental Properties
NerdWallet: How to Invest in Real Estate: 5 Ways to Get Started
SmartAsset: Beginner's Guide to Rental Property Investing
Zillow: 12 Steps to Becoming a Landlord
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