Investing in Rental Properties – Real Estate Tips for Beginners
Rental properties are excellent for generating passive income. If you are a beginner and want to learn more, we have some great Real Estate Tips for you! My husband had his Real Estate license and loved working in the industry. He was and still is great at it and knows his way around. It’s a very interesting and profitable business and with some research, you can learn how to invest in rental properties too!
Also called turnkeys, rental real estate properties are fully functional, rehabilitated, and ready to use. Many new real estate investors who have little experience in the industry seek to own one or two rental properties.
Numerous beginners in the real estate market find it challenging to go through the ins and outs of property investing. I’ve always had an interest in Real Estate especially since my husband had his license when we first met.
Here are five tips to help start your new business venture.
Use an Online Directory
An online real estate directory is a database that connects interested property buyers with sellers. Directories offer a broad range of information for different properties including prices, locations, and property age. You may even see reviews made by users about the neighborhood to give you a preview of the area. A web directory is simple but accurate, and it is a list of websites structured and organized to help a user find what they need.
Specific online directories for real estate may also provide users with side-by-side comparisons of properties. Use this feature to carefully check the conditions and values of varying rental properties to aid you in making your decision.
Invest in Single-Family Homes
Understand that the “family” is a vital component to a rental property investor’s success. Single-family homeowners selling their homes to become rental properties update their dwellings hoping to increase its value.
Several families are always on the lookout for a place to rent. Certain breadwinners may have jobs that require them to move to different locales when needed. These professionals may have to bring their families along the move. Target these potential renters to help you gain a good start for your rental property venture.
Use Leverage to Buy the Rental Property
Leverage refers to the amount of money you borrow to invest in a property in comparison with the property’s value. You gain a high potential for your return on investment (ROI) the higher the leverage you use.
Using leverage in real estate investing helps increase income margins on your investment properties. For example, if you have USD 100,000 on hand and assuming that property values for this year increased by 5%, you can do three things with that cash:
- Use all the money to invest in a property resulting in 0% leverage. Your property’s value becomes USD 105,000, and your net gains are USD 5,000.
- Buy a property worth twice the amount of money with the help of a property financing method to borrow the additional USD 100,000. This option equates to 50% leverage. The investment property value becomes USD 210,000 and your net gains are USD 10,000.
- Buy a property worth four times the amount you can handle with the help of a property financing method to borrow the remaining USD 300,000. This path creates 75% leverage. Your property’s value increases to USD 420,000 while your net gains turn to USD 20,000.
You’re increasing your ability to buy investment properties with higher values the more leverage you use.
Screen Potential Tenants
Your first rental property investment may have poor ROI because of bad tenants. Properly screen prospective tenants to help your first rental property become a success. You can use specific online services to help you verify a tenant’s previous addresses, eviction histories, and criminal backgrounds.
Here are a few steps to help you screen your potential renters:
- Determine the income, credit scores, previous residences, work histories, and evidence of criminal backgrounds.
- Use social media to help uncover the lifestyle of your prospective tenant.
- Accept or reject the applicant.
- Make a judgment call after the screening to clarify doubts.
- If you denied an applicant, tell them your significant concerns.
Remember, though, to never illegally discriminate your applicants. Federal fair housing laws help protect potential renters from discrimination regarding their national origin, age, race, sexual orientation and preference, disability, or family status. Get a loyal and trustworthy tenant for your rental property, and you’ll gain peace of mind knowing you don’t have to go back to square one in searching for applicants.
Buy a Property with Outdoor Space
Many prospective renters are on the lookout for a cozy outdoor area. Your tenants can invite their friends and stay at your property’s front yard or backyard. Also, you can assume that the rental property is well-kept by the looks of the garden. A beautiful front yard may influence a higher price point, but you might also get a good ROI out of it.
Extensive yards and gardens in a property may not be an ideal choice for beginner real estate investors. For instance, large gardens require several maintenance practices that might not entice many potential renters. Look for homes with small yards to promote outdoor relaxation areas without the need for tedious maintenance. These Real Estate tips will give you a great way to get some insight on the dos and don’ts of investing.
Investing in rental properties is an ideal method to diversify investments. As a beginner in real estate, investing in a rental property or two may be a challenging feat and learning some key Real Estate tips will help you get there. Understand the basics of owning a rental property first to help you deal with current and upcoming challenges.
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