How to Buy Properties to Rent and Become A Real Estate Investor
There are lots of different kinds of investments. One of the most successful is real estate investments.
Unlike stocks and bonds, this will help you make a stable and continuous cash flow whether you are working a small job or retiring.
However, there’s a lot to work on before you can start investing in real estate. Among these requirements, you will first need to find the right property to purchase.
With the right details that come at the perfect price, you’re sure to generate an income that can grow your wealth.
Are Rental Properties a Good Investment?
One of the best ways to make an investment is through real estate. Compared to other investments, rental properties can provide you with a continuous cash flow on a monthly basis.
Whether you work or not, your rental property will continue to generate an income for you. Depending on how much you invest in the property, you can earn as much as the amount you invested during the start of the year and possibly even more.
However, it’s important to note that rental properties won’t be an easy money scheme. While it can earn you a good cash flow, it takes a while to develop and grow your investment.
When investing in a rental property, remember that there will be no income without a property. This means you will need to purchase one before you start gaining from the investment.
Your starting point is to find the right property to rent, which is the part of the plan that usually takes up the most time.
Once you get a hold of your property, as well as find a tenant, you can finally sit back and wait for your investment to generate a continuous income.
How Do You Find Rental Properties to Buy?
Looking for the right property can take a while, especially if you plan on moving from neighborhood to neighborhood trying to find the right house.
Luckily, there are platforms available online where properties are listed. A few of those sites are the following:
One of the leading real estate listing search engines is Zillow, currently holding a database of millions of homes both up for sale and for rent. The said website provides information and resources on different properties to help them find the exact home of their preference.
The website makes use of a unique feature called a “Zestimate,” which is the company’s estimate of the property’s value based on a certain formula. Take note that this isn’t an appraisal conducted by a professional. However, it’s a great way to offer users a peek at the values of homes and understanding the real estate market.
MLS offers free real estate listings put up by realtors and other professionals within your area and others. The website is accessible for everyone looking for a property for rent or for sale without having to move from home to home personally.
On the website, you will be able to find different news on real estate, common concerns, classes, information on mortgages, and even a mortgage calculator. Different kinds of properties are also listed on the site, ranging from new and resale homes to lands and commercial or investment properties.
Another well-known real estate and rental property search engine is Trulia. Here, they provide you with a variety of information on their listed properties. This includes basic information on the physical property as well as mortgage rate calculation and contact information on local agents.
One notable feature on Trulia is their personalized search results. Users are able to filter and limit their searches to properties that display the characteristics they prefer. For example, nearby schools and their ratings, crime data of the area, and proximity of different restaurants and shopping areas.
The data can also be sorted by demographics and price-points of your choice.
While being a residential brokerage company, Redfin helps their users who are on a search to find a new home, which they do by filtering searches by property type. When a user finds a potential property they are interested in, Redfin connects them to real estate agents.
The website also offers other features such as an affordability calculator, guides to property purchasing, and even referrals to good handymen and stagers.
This site makes it easier to schedule appointments with agents, get information on open houses, and explore homes personally or via a virtual tour.
How Much Profit Should You Make on a Rental Property?
Once you get your rental property set, it’s time to put a price on it. Although it may be tempting to price your property enough to make a quick buck, it’s important to consider who would be wanting to rent it.
The price you set on the rental property should be a price you would be willing to pay if you were the tenant. Consider the capacity and condition of the home before you place the price tag.
If the property is under a mortgage, this would be your starting point. Another thing you’ll need to calculate for is the expenses for the property’s maintenance.
To make a profit from the rental property, the tenant’s monthly payment should be enough to cover the property’s mortgage and the estimated monthly expenses.
For example, the total cost of expenses for the property is $980 every month. If the property rents for $1,200 a month, you are making a profit of $280.
When deciding how much you should make from the property, it’s best to be sure you are making $250 or more from it every month.
This can vary on the value of your property, which takes into consideration the location, condition, and size of the said home. The market can affect how the property is priced as well, particularly if it is in a neighborhood of high demand.
Assume that you own five different rental properties of the same value, and you make $280 monthly from each of them. By the end of every month, you will earn $1,400.
Can I Afford to Buy a Rental Property?
Buying a property is a great deal. When purchasing a property, you’ll be taking out a big amount of money. However, it won’t be easy to have enough to cover the full purchase price of the home upfront. Sometimes, the initial deposit can also cost a lot.
Before you decide on investing in a rental property, you have to make sure you can afford to do so. Fortunately, there are different ways to be able to do so without having the complete amount of the property’s purchase price.
A mortgage is a loan that can help you finance to purchase a property. Like other loans, mortgages will require you to pay off the borrowed money along with an agreed interest rate.
People who invest in real estate usually take out mortgages in order to start their investments earlier. When this happens, the property is rented at a price that covers the monthly mortgage payment. This means that the tenant will be paying off the mortgage.
Regardless of what you’re looking to purchase, saving up for it is always a good choice. Depending on how much you earn and how much you can put away, this can take a while to build. However, it’s one of the easiest ways to earn enough money to make a purchase.
The recommended amount to put into your savings is 10% of your income. It would also work if you have extra cash coming from bonuses, gifts, or the like.
In real estate, there are private money lenders. These are non-institutional lenders who offer short-term loans for purchasing properties or renovating investment properties.
Most private money lenders offer upfront investment property financing, which investors will need to pay back within a certain period of time. This is common for investors who are looking to raise the value of their real estate property in a short time period.
Similar to private money, hard money loans are secured by a real estate and usually come in short-terms ranging from 12 months to 5 years. These are often funded by private investors rather than conventional lenders such as banks.
With a hard money loan, you are required to make monthly payments of only the interest, or the interest with some principal, and then a balloon payment at the end of the loan term.
Family and Friends
If a loan isn’t working out for you and you can’t seem to save up enough to secure the purchase, you can ask for help from family and friends given that you’ll pay them back in an agreed time.
Borrowing money from either family or a friend can keep you at ease. Unlike lenders, you won’t be pressured to pay off the borrowed money. However, this will depend on whether they are capable of lending you a big cost.
There is a real estate agreement wherein the seller handles the mortgage process of purchasing a property instead of the financial institution. This is called seller financing. The buyer of the property will be signing the mortgage with the seller instead of applying for a mortgage directly from the bank.
This usually costs little to no closing costs and may require fewer conditions to fulfill such as an appraisal. When it comes to down payments, sellers will also be more flexible with the cost than a traditional bank.
How to Determine a Good Rental Property
There are a few characteristics of a good rental property. While a home may look good, it won’t immediately be a great pass for some people.
If you’re looking to invest big on a rental property, it would be best to look out for the following:
When moving to a new area, a lot of people will research the neighborhood. One thing that is commonly looked out for is the crime rate in the area. No one wants to live in a neighborhood with high crime rates.
Before you secure a property, make sure to check out the crime rate as well as other relevant details about the neighborhood.
3 Bedroom, 2 Bathroom 1,200 Sq. ft. to 1,500 Sq. ft.
If the property comes with three bedrooms, two bathrooms, and is about 1,200 to 1,500 sq. ft., the property is called a cookie-cutter home.
Most people would want to rent this type of space. This is because there will be fewer costs and expenses to cover this type of property.
There’s a possibility that your tenants will be a family with children or a student living alone. Put this into consideration when choosing a property.
If there are good schools nearby, it increases the chance that someone will rent the property for a longer time, particularly if someone in the family or the tenant themselves will be attending that school.
Good Businesses in the Area
A property that is close to different businesses is always a good call. It can be shopping malls, restaurants, cafes, supermarkets, and the like.
Properties like these usually attract a lot of people because of how convenient it would be to live close to a business area.
The Best Rental Property Investment Strategy
With real estate investments, you should have a proper strategy. It’s easy to look up a cheap property with a good location, but how can you be sure how much income it can generate you?
Having a strategy will make it easier for you to determine how much you can earn from the property.
Buy Lower Priced Homes Around $50,000
Some neighborhoods have fewer buyers than others. In these areas, the properties are usually priced lower than the home’s value. Look out for homes that are in good places that come at a cheaper price than others.
Buying the property for cheaper than it is worth makes you money in equity. For example, a property has a market value of $100,000 but you purchase it for $60,000. You make $40,000 when you purchase it.
Rent Them for $750 a Month
With buying a cheaper property, you can offer a lower rent. A property that costs around $50,000 can be rented for $750 a month.
If the total expenses for the property are $250 a month, your monthly profit will be $500 given that there would be no maintenance costs during that month.
Make $250 or More in Passive Income Each Month
Depending on how you price the property, aim for an income of $250 or higher every month. Purchasing a cheaper property gives you the ability to increase the renting price without making it too expensive for most people.
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