I have a guest post today from Darren Robertson about investing in rental property. Investing in your first property can definitely be intimidating. Darren has 5 tips that will make your life easier when choosing a property.
Are you Hesitant Investing in a Rental Property?
When new landlords step into the rental industry for the first time, it can be very overwhelming or even intimidating, and they might be hesitant about investing in a rental property. How do you know which properties to choose? Which will rent out best in the industry? There are hundreds of questions that you will need to find answers to as you set up your business plan.
Even experienced landlords have these concerns: does this investment make sense for my portfolio? Should I buy another studio or a single-family home?
Choosing properties can be an overwhelming process, but it’s part of a greater reward. Setting up your own business and managing properties is fulfilling work, and it doesn’t have to be difficult at every turn.
We’ve got five insider tips for you today that will help you decide about investing in a rental property, whether it is your first or your fifth!
#1 Avoid the First Property Flip
If you’re hesitant about buying a rental property and becoming a landlord, you don’t want to start with a fixer-upper that needs a lot of work! Many people imagine that the only way to make money as a landlord is to buy very cheap and fix the place up to be rentable, but that isn’t the case at all.
Rather than hedging your bets on a property that will require more time and handyman skills than you may be ready to put into the property, think carefully. Most landlords are more successful if they look for properties in need of minor repairs priced below market value.
These properties won’t require a ton of time or work, so you can quickly give them a facelift and have them on the rental market. The sooner your property can be rented out at a good profit margin, the faster you’ll be making money on your investment!
#2 Invest in Good Management Right Away
The only way to guarantee that you will make profits on your rentals from day one is to invest in managing the tenant experience the right way. Good management, whether that means scheduling your time properly or hiring a property manager, ensures the condition of the property and the payments of the tenant.
You want to be sure to take the time to screen tenants and choose reliable ones that fit with your property, and you also want to be sure that you give tenants a good experience so that they will consider renting for another lease term when their first contract is up.
Another aspect of management that you might consider is connecting with a great real estate agent. can help you get to know the community, the most reliable companies to work with, and even keep an eye out for your next investment property.
#3 Keep it Simple at First
There is always going to be time to think beyond one or two properties onto issues like deciding if you want to set up an LLC business or an S-corp to manage all of your investment properties, but those don’t matter at the beginning.
When you’re hesitating to choose a rental property or to decide if you want to be in the rental industry at all, you need to keep it simple. Focus on these key factors to find early success:
- Calculate your cash flow and keep it in the positives
- Attract high-quality applicants
- Screen tenants
- Find good deals on properties, such as on foreclosed homes
With these four focal points, you’ll be able to get your portfolio kickstarted. Once you have reliable cash flow, you can worry about everything else.
#4 Learn Applicable Laws
No matter what stage you are at in the rental game, you want to make sure that you learn the local, state, and federal laws that apply to your work. It can be very expensive to break laws, and you don’t want to have to face any huge fines because of your inexperience.
Take time to familiarize yourself with laws and get a local lawyer on retainer to help you with any important questions that you may have.
#5 Calculate Potential Cash Flow Before Your Buy
If you’re still hesitating about buying that rental property and just aren’t sure if it will pay off or not, you need to take a moment to calculate your potential cash flow. In fact, this is something that you should do for every property before you buy it.
Here’s how to calculate cash flow:
- Total up your monthly expenses (including mortgage, maintenance costs, vacancy allowances, property management, taxes, and insurance).
- Predict how much rent you can reasonably charge.
- Subtract all expenses from the rent and see what your potential cash flow will be.
For some properties, this number might come out to be something as low as $50 a month. For others, margins of $200 to $500 may be possible. Ultimately, it is your choice to decide what type of cash flow will work for you, but you always need to know your cash flow!
Not only does knowing your potential cash flow give you the confidence that you need to move forward with your business, but it also ensures that you are able to keep a budget and have realistic expectations about your future growth.
Darren Robertson is a top-producing licensed REALTOR® in Northern Virginia, just outside Washington, D.C. Valuing service over sales, Darren is known by his clients for both his extensive local market knowledge, as well as his patience and reliability as he helps them on their home buying and home selling journey.
Darren is a tech-forward agent who places a heavy emphasis on internet marketing and blogging in his business.
When he’s not helping his clients buy and sell homes, he enjoys going on adventures with his beautiful wife and two little ones, strategy games, movies, red wine, and traveling.
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