- Tips for real estate investors looking to purchase rental properties
- Rental property investment can help build wealth via tax advantages and passive monthly income
Rental property investment can be lucrative but not a slam dunk
Rental property investment can be quite lucrative over time but it’s not always a slam-dunk. Plus, the COVID pandemic has impacted rental property investment just as it’s impacted everything else. Just visualize the vacant storefronts on Madison Ave. or empty office towers in New York City for a wake-up call to new realities.
Tips for investors looking to purchase rental properties
Here are tips for investors looking to purchase rental properties in today’s world of real estate investing:
Investment Strategies Center around Cash Flow
- Investment Strategies- Residential rental property is one of the most popular investment options. Think single-family homes, condominiums, townhouses, duplexes, triplexes and four-plexes. Commercial rental properties include office buildings, retail spaces and self-storage/warehouse facilities.
– Both residential and commercial rental properties earn their income by renting to tenants
– Managing residential and commercial rental properties require
– Commercial properties often cost more to purchase and manage than residential properties so know how much you have to invest as you explore the two rental property options.
Know your Numbers and Expenses
2. Know Your Numbers and Know Your Expenses
Rental investment property expenses may include:
– Property managers
– Property taxes
– Rental property insurance
– Utility bills
– Property maintenance
– Rental vacancies – No rental property is 100% occupied at all times, ie. no occupant = no rent
– Miscellaneous fees
– Get actual quotes for tax bills, rental insurance, utility bills, etc.
– Research current going rents and confirm that the rental property you’re considering can generate that rent rate – ask a local real estate agent
– Then, and only then, run your numbers – and then run them again
Cash Flow is Name of the Game
3. Cash flow is the primary reason to invest in rental properties – invest for cash flow
- Some investors only buy if the property generates a specific return on investment (ROI)
- Some set a minimum net rental income per unit
- Investment properties only make sense if they have the potential to realize your cash flow goals and align with your risk tolerance.
Markets Are NOT the Same
- Determine the right market
– Ideally, purchase rental property in a location with favorable supply and demand ratios
– Research markets in locations with high demand and growth and zip codes/neighborhoods that have opportunities for the type of rental property you’re considering
– Low-value real estate usually priced consistent with worth – cheap properties can become more costly than moderate- high- value real estate
5. Make sure to maintain reserves
– All properties need repairs and maintenance including rental properties
– Include a minimum of 10% of monthly rental income for your repair reserves
Ensure Proper Property Management
- Make sure your rental property is properly managed
Tasks include filling vacancies, screening tenants, executing thorough leases, showing the property, rent collection (have easy payment options), and communication with tenants and vendors
WORD TO THE WISE – Do Extensive Research BEFORE Buying
Just as homeowners thoroughly and conscientiously research and prioritize their wants, needs and finances before buying the home in which they choose to live, real estate investors do the same with any residential or commercial rental property before they choose to invest. And remember, the primary goal in choosing what and where to invest is cash flow.
Thanks to Millionacres.