Did you know that there are over 50 million renter-occupied homes in the US? Buying a rental property is a great way to invest your money and build passive income. Investing in real estate can be tricky for those who are just getting started, and a few tips can help you on your way.
Read on to find out more about real estate investments and how to get involved.
Are You Ready to Be a Landlord?
Being a landlord has its own set of challenges outside of finding the best rental property. It includes maintenance and repair work, preparing the unit, and finding the right tenants.
If you’re handy with a toolbox, you might be able to do some of the work managing a rental property yourself. However, hiring a property management company makes things a lot easier. Doing so will eat into your profits, however.
Buying a Rental Property
Once you decide how your investment is managed, you need to find a rental property for sale in the right area. Beware of buying a property in an area in decline.
Do some research (or have a real estate agent do it for you) and look for homes that are stable or increasing in value.
Buying vs. Financing
Do you have the option of buying a property outright? If so, buying or financing depends on your overall investment goals. If you buy with cash, you will start to generate a positive monthly cash flow right away.
Should you choose to finance, your monthly positive cash flow is smaller. But, your overall return on your investment is higher.
Keep in mind that you’ll need a much larger down payment on a rental property than you might need on a primary residence. Generally, you must put down 15% to 20% of the cost to buy a rental property.
How you choose to pay for your investment has a direct effect on your passive income. If you’d like to learn more about building passive income through real estate investing, check out www.activedutypassiveincome.com.
Condos vs. Single Family Homes
Investing in a condo rather than a single-family home has its perks. They’re usually less expensive and have fewer maintenance requirements. Securing financing can be tougher for condos, and there are ongoing costs associated with the HOA that you should consider.
Despite the added costs, investing in a condo isn’t a bad idea. Be sure to check out the financial health of the HOA first, as well as the situation with the HOA management company. With this in mind, you can get help with California HOA elections from HOA election services such as Pro Elections, or similar services in your area. Also, check the condition of the entire complex – not just the unit you’re interested in.
Understand Landlord-Tenant Law
Look into state and local landlord-tenant laws and make sure you understand them. It may take some time, but reading over what is and isn’t allowed might save you a lot of headache down the road. If you have the cash, you might want to hire a lawyer to help explain things to you.
Putting It All Together
For many, buying a rental property is a sound investment. Find a property in an area that isn’t in decline and decide whether to buy or finance. Then, decide how you want your property managed.
After that, understand your legal obligations and those of your tenants.
If you found this article helpful, check out some of our other real estate blogs.