Beginner’s Guide to Investing in Rental Properties
One of the best ways that you can begin building your wealth is by investing in rental properties. Not only will this help you build up equity as you pay down on the properties that you own, but you will also generate a good cash flow every month as well, provided you work all of your numbers right. However, similar to other investments, there are a few different tips that you should make a note of before you just start diving into something like this.
Fix Everything Involving Your Financial Situation
Make sure that both your finances and credit are in great shape before you even begin taking any steps with investing in rental properties. This is because if you have a questionable credit history, you may have some difficulty with securing an adequate amount of financing. In fact, many lenders will reject you almost immediately if they detect a high debt-to-income ratio, meaning that you should always do whatever necessary to take care of any outstanding debt before you try to get financed for a home.
Before purchasing a property, it’s important that you spend approximately a few months becoming as familiar as possible with the real estate business itself, as well as what all will be expected from you as an actual landlord. You can obtain all of this information from books, the internet, and by joining different clubs to meet other investors and property managers, some of which you may end up partnering with in the future.
Look at a Lot of Properties
It can be extremely tempting to want to purchase the very first property that you come across; however, this is not as good of an idea as you may think. Since you’re technically a new investor, it will take some time for you to learn how to spot a great deal. If you purchase something too soon, chances are you’ll overlook something vital and become too discouraged when things don’t go according to the way that you’ve planned. Consider traveling to different neighborhoods in your area to look at different properties and see if it’s OK to look at them if they are already occupied with tenants. By visiting different neighborhoods, you’ll be able to get an idea of the types of people you will be able to attract as well.
Prepare Yourself for Expenses
Chances are you may end up coming into a property that will need some repair work done to it; however, there are instances where this sort of issue doesn’t happen. If no actual repair work needs to be done, it’s still a good idea to do a little bit of minor work to the property itself, such as landscaping and painting, so that you can improve the overall appearance and curb appeal. Additionally, you’ll need to ensure that you also put some money aside for things such as the following:
- Legal fees
- Garbage collection
- Pest control
No matter who your tenants may be, chances are they may only stay on the property for a few years before they leave. Even then, expenses such as the mortgage and taxes will have to continue to be paid on time.
Hire Someone to Be the Property Manager
Even though you’re the one investing in a property, that doesn’t mean that you have to be the individual who handles duties such as answering the phone whenever something breaks inside the property itself. This is where you will want to consider hiring a property manager to handle tasks like that so that you will be able to concentrate on other things, such as looking for additional properties to invest in. Additionally, property managers can even search for and screen potential new tenants for you as well! Check out property management company in Phoenix as an example.
Always Think Realistically
While there’s nothing wrong with always being optimistic, all of your expectations should always be grounded in reality. Keep in mind that you obviously won’t become a millionaire overnight, and many of your deals may become modest until you’re able to find better ones. For instance, if you quit your current job with the expectation of making some grand fortune, you may end up finding yourself in a lot of debt and really bad shape as a result. While you can make a lot of money in this business, you still have to look at a lot of properties and learn a lot of strategies and cost-effective methods to truly be successful.
Perhaps the most important thing to keep in mind is to enjoy what you will be doing simply. Take the time to get to know as many people in the business as you possibly can and get as much information that you can get your hands on. After all, the more you know, the more money you’ll make in the long run!