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There are many ways in which a person can make a living when it comes to real estate investing some of them carry more risks than others. It goes without saying that those that carry the greatest risks are often the very real estate investment methods with the highest potential profit but slow and steady, in many cases, wins the race. Flipping houses is in the news a lot because so many fortunes have been made doing this—more than a few have been lost in this venture as well, but those don’t make the news nearly as often.
Working with rental properties isn’t nearly as glamorous and doesn’t provide the almost instant profits that flipping houses might but it is also a great and very valid method. Real estate investing has a great advantage in that it will build a steady profit over a long period of time if you plan properly. Rental properties are in demand now more than ever with home prices rising so rapidly and millennials reluctant to purchase their first homes. For this reason rental properties are a good investment, especially those that are family homes.
There are many reasons that people rent and, while there are some risks involved when renting properties, the risks are much lower than the risks involved in flipping or pre-construction investment endeavors. There are a few things you should consider when purchasing a rental property in order to make a wise and long lasting investment that will provide a long-term stream of cash flow and increase in value over time.
1. Only invest in rental properties in areas that people want to live in.
It may be true that you can buy cheap properties in a few very run down sections of town but the properties will be high maintenance and will be difficult to generate a consistent profit. It is best to pay a little more for a more attractive address for renters. You will find that your properties are inhabited more often, are easier to maintain and will make you more money in the long run.
2. Pay attention to the types of people in the area and buy rentals accordingly.
It is quite possible to turn large homes into multiple smaller apartment units (according to local zoning laws) that are ideal for college students. You do not want to do this however in an area that is geared towards family homes. Not all areas are friendly or tolerant of college students. Design the rentals according to the market you are attempting to attract.
3. Don’t be greedy.
The goal of owning rental properties is of course, to make money. At the same time, if your price your properties too high, you will find that they sit empty more often than not. Every month that your property is empty is a month that you aren’t making money on that property at best and a month that you are losing money at worst.
4. Know the market.
Study the local market for buying and renting real estate. This will help with many things, not the least of which is determining whether or not any given property will make an attractive rental unit. Studying the market will also help you determine property values and how much rent should be for the units month after month.
5. Keep your eye on the long-term goals.
Rental properties are a marathon rather than a sprint, with the greatest profits coming at the end. You will want to pay as little interest on the property as possible and pay the property off as quickly as possible in order to realize the maximum profit potential. The real money, when renting properties as a real estate investment, isn’t in renting out one or two units but twenty or thirty. The more rental properties you own the more money you stand to make from owning them.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter, and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at-risk children.
