As an alternative investment strategy, many people are turning towards rental properties to make passive income. Before rushing into it, there are many things you want to take into consideration. Here are several tips to help you get started with your first rental property.
Choose What Type of Rental Property
There are different types of rental properties you might be considering when starting out. This could be an Airbnb type or short-term rental, a long-term tenant rental, or a commercial rental property, all of which can significantly change what you may need.
For example, you may need to hire a commercial property management company if you are looking to rent out various business properties rather than investing in a home to flip. This is substantially different from turning a residential home into a long-term rental property.
The most common types of rental properties are:
- Single-family homes
- Vacation homes for short-term renters
- Multi-family homes
- Apartment buildings
Start With your Financials
Once you have a clear knowledge of what type of real estate investment you want to be making, you can start looking at your financials. With any type of rental property, you are essentially starting a business so having a proper plan is essential.
Handle Your Current Debt
When investing in a property, you are going to inevitably be getting yourself into debt before you are able to start making an income. Because of this, you will first want to make sure you eliminate most of the personal debt you may have hanging over your head. This would include current mortgages, credit card debt, student or car loans, along with any other payment plans you have set up.
Build Your Savings
Then you will want to make sure you have some type of savings set up for various renovations, repairs, and other expenses that may arise you didn’t consider. This could include your downpayment, insurances, permits, or other unexpected situations such as a roof repair or plumbing issue that may arise.
Calculate Your Expected Earnings
Once you have your personal financial ducks in a row, you will want to speak with a lender or financial advisor that can help you calculate what your expected earnings will be. This, of course, will vary depending on what you are charging for rent, duration of vacancies, interest payments, or renovations like adding solar panels for your home.
Do Your Market Research
The number one make-or-break for any rental property is the location. Where you end up deciding to build your rental investment can change a lot of factors. If you are looking to start a vacation rental property but are looking in a suburb area because the homes are cheaper, you may not do as well as if you were to purchase a condo in a high tourism area.
On the flip side, if you are looking to make a substantial investment in an apartment complex but are trying to purchase commercial real estate where the rental market isn’t as lucrative, you will end up losing more than you could make.
This is why it’s incredibly important to do your market research based on the type of investment you are looking to make, along with various locations that could best suit your needs.
Know The Legalities
As we said before, with every type of investment comes a different set of responsibilities and expenses. This also includes the legalities of your property. You may need a completely different set of permits if you are working in commercial real estate rather than residential real estate.
You will also need to learn about legal leasing agreements for tenants versus a small business in an office building. This is why we always suggest working with a property management company that can ensure you are set up for success rather than finding yourself in some type of legal trouble down the road.
These are just a few of the steps you will need to take when starting with a real estate property investment. There is a lot of work and research that goes into an endeavor such as this. Take your time and do your due diligence before diving in. You will thank yourself for being patient in the long run.
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