With a steady stream of income and the potential for decades of generating a healthy cash flow, buying a rental property appears to be the ultimate real estate investment. Yet, even the savviest entrepreneurs find rental properties to represent money pits that return nothing more than perpetual misery. How do you turn diligent research into a profitable lesson on how to invest your hard earned money in a rental property?
The key is to follow 10 tips for buying and managing a rental property. The property management specialists at Utopia Management want to emphasize that knowing how to manage a rental property is just as, if not more important, than knowing how to buy it.
Make it a Turnkey Investment
Should you invest in real estate that requires plenty of work to achieve a higher rate of return, or do you accept a lower rate of return on a proven rental property that requires little, if any maintenance to get ready for tenants. When you invest in a turnkey rental property, you invest in real estate that is already in selling shape for prospective tenants. It is the right move for most investors, especially rental property investors in the game for the first time.
Establish Financing First
Buying a rental property invokes the classic “cart before the horse” axiom. The point is do you search for a rental property first, or do you lock up financing before you begin your search? The answer is to develop a realistic budget, and then return to the budget when you find a rental property you can afford. Then, the time has come to discuss financing options.
You can expect to hear a wide variety of advice on how to finance an investment in a rental property. The issue is not how you plan to finance your investment. Whether you opt for a 30-year mortgage or use the profits earned from another business venture, the key is to organize financing for a rental property investment long before you begin the search for the perfect real estate investment. There are plenty of online marketplaces that help get the ball rolling on the financing of a rental property.
Familiarity Breeds Profits
They say familiarity breeds contempt, but for real estate investing, familiarity is the best friend of investors. Take advantage of experience to gain a competitive advantage in the investment of a rental property. You do not have to invest in a rental property in your childhood neighborhood, but you should invest in an area that you know well. For example, a college professor should look at rental properties in an area near the school where he or she teaches. A professional who works and lives in a downtown neighborhood should consider buying and managing a property located to both home and work.
Delegate Management Responsibilities
Do you have the time and patience to handle late night emergency phone calls that involve responding to a plumbing issue? Do you want to spend every minute of the day dealing with tenant complaints about noise and other nuisance issues? Is there enough time in your day to chase down tenants for delinquent rent payments? Let’s assume you answered no to all three questions.
You do not have to be active in managing a rental property to benefit from the cash it generates. Hiring a property management company that has acquired all the proper state licenses is a great idea for rental property investors from all professional backgrounds. In addition, a professional management company understands state law that includes the legal rights granted to tenants and property owners.
Marketing Made Easy
Finding the right tenants should be the primary goal of any rental property investor. Placing a few ads on Craigslist and hoping for the best does not cut it any more in the hyper competitive world of real estate. You need to be active on social media, such as promoting your rental property on Facebook and Instagram. Video marketing can help you attract the attention of potential tenants by highlighting the best visual features of the rental property. Start an automated email campaign to keep interested prospects informed about property-related changes.
Vet Prospective Tenants Like a Detective
If you decide to be active in the management of your rental property, you should screen potential tenants like a detective investigating cold cases. Running a background check is a good start, but you also need to check both personal and professional references. Run a credit check to determine how consistent a prospective tenant pays his or her bills on time. In addition, ask every prospective tenant to list at least one reference from a rental property owner or management company.
Get Paid Online
Some tenants come up with creative explanations as to why rent was late. The “Dog ate my homework” strategy can lead to countless hours wasted tracking down tenants to pay rent. The solution to the rent payment dilemma is to establish an online system for paying rent. With just the click of a button, you receive monthly rent payments that automatically come out of tenant bank accounts. You can ask for debit or credit card information to start the online payment process.
Understand Rent Control Regulations
Every city implements rent guidelines that cover everything you need to know about buying and managing a rental property. One of the guidelines explains the process for collecting the amount of rent allowed under municipal law. Referred to as rent control, the process requires property owners to present formal applications to increase rent. Knowing how much you can charge for rent plays a huge role in determining whether an investment in a rental property is worth the financial risk.
Look at buying a rental property in the same light as an investor views the value of a stock or a bond fund. Buying when real estate prices are low is the best strategy for earning the highest return on your real estate investment. A recession is the best time to buy, since demand should fall well below supply. Economic conditions should be a strong influence that determines when you jump into the real estate investment game.
Network with Other Rental Property Investors
You can learn from your mistakes, but why experiment with failure when you can learn from the mistakes made by other rental property owners. Network to gain the information you need to make sound business decisions. This is an especially helpful tip for first time rental property buyers.