7 Factors to Consider Before Becoming a Rental Property Investor

Posted On Wednesday, 06 July 2022 01:40

Investors are pouring funds and resources into the real estate market. In December 2021, investors bought 44% more properties than in 2020. iBuyers bought over 71,000 homes in 2021.

Real estate rental properties hold a lot of promise for investors. Rental rates are increasing faster than inflation. There are

Now is the time to become a rental property investor. The market is still hot even though interest rates increased over the last few months.

This is a great opportunity, but there are plenty of things to watch out for. Investing in the wrong type of property could spell financial disaster.

Read on to learn the top seven things to know before making your first rental property investment.

1. Know What’s Really Involved

New rental property investors think that getting into real estate is the answer to all of their problems. You can’t quit your job because you have one rental property.

Real estate investors don’t realize what’s truly involved in managing a rental property. They don’t realize that they can get calls from tenants at 3 am because of an emergency plumbing situation.

If you’re the landlord of the property, it’s your responsibility to take care of the issue, even in the middle of the night.

There are risks involved in real estate investing. A rental property may sit empty for weeks or months at a time. Are you prepared to pay the bills if the property isn’t filled?

You need to think through what being a rental property investor entails. You may need to find ways to reduce your risk or delegate tasks.

You could hand off landlord responsibilities to a property management company. You can hire a maintenance person who answers emergency calls.

2. The Cost to Purchase a Rental Property

There are costs to buying a rental property beyond the purchase price of the home. You have to pay for property taxes, repairs and maintenance, insurance costs, closing costs, and marketing expenses.

These costs need to get included in your initial calculations. You’ll want to make sure you price the rental property so it turns a profit.

3. Rental Investment Strategy

You should have a rental strategy planned out before you start searching for properties.

One of the most common rental property strategies is to cater to long-term renters. These are people who will commit to your property for a year or more.

The advantage of this strategy is that you have a reliable income. You get to know the tenant and make sure that the property gets taken care of.

With short-term leases, you can raise the rent a little more with each lease. These are leases for less than a year, usually around six months.

This is a good match for people who relocate to a new area. They usually want to rent before they purchase a property.

A vacation rental is another possibility, but you’ll have to deal with the ups and downs of the tourism market. You’ll have higher advertising costs as well.

4. The Local Real Estate Market

The local real estate market is just as important as national economic indicators. You need to invest in a rental property that’s in a great neighborhood, safe, and near transportation.

You’ll want a property that has the amenities that renters want. They may want to live near a gym or within walking distance of restaurants. They’re willing to pay more for those things.

5. Return on Investment

Be sure to calculate if the rental property will deliver a return on investment. You can do a quick calculation by looking at the local rental rates in your area.

If you can rent a property for 1% or 2% of the purchase price, you’re probably going to turn a profit.

Do an in-depth calculation by creating profit and loss statements for the first couple of years of owning the property. Play with different scenarios to determine if you’ll be profitable.

6. Should You Do Everything Yourself?

There’s a myth among entrepreneurs and real estate investors that you have to do everything on your own. It’s weak to show that you don’t know everything and you need to figure things out for yourself in order to be successful.

Get that mindset out of your head as quickly as possible. It will make you broke.

You should learn as much as you can about being a real estate investor. Learn from resources like Rental Real Estate and Bigger Pockets.

The best thing you can do is to lean on the expertise of others to fast-track your knowledge of real estate. Get a good mentor or join a rental property investor group in your area.

7. Have a Vision

You’re about to become a rental property investor and purchase your first rental property. You’ll start to earn income from it.

What’s next? In other words, what’s your vision for the rental property investment?

Few property investors have a plan beyond a single property. That’s OK, but it helps to have the vision to grow as a rental property investor.

You might want to expand into commercial properties or diversify your investments outside of your local area. You can invest in 20 properties in a small area to make property management easier.

Having a vision allows you to make better decisions. You have a goal to work towards. Your work as a rental property investor becomes more fulfilling when you reach the goal.

Take the time to write about the types of investments you want in your portfolio and how much you earn from those investments.

Tips to Become a Rental Property Investor

If you want to become a rental property investor, you need to start with a firm foundation. These tips showed you what to consider before you buy your first rental property investment.

Now that you know how to get started in real estate investing, check out the other articles on the blog for real estate news and insights.

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