Investing in real estate can be an exciting yet daunting venture to pursue. Decision-making plays an integral role for people to reap its benefits and rewards, so it is best to be well-versed in the process.
People cannot simply purchase a property and expect to receive money from it. The process of getting there requires patience, analysis, knowledge, and help from a real estate agent.
Why would someone need an agent? They are able to provide valuable insights on what properties are ideal. The properties involve several factors that determine if it is worth investing in.
Things like utilities, maintenance, and insurance are things to consider before purchasing a property. Additionally, a real estate agent is a professional who can guide people throughout the process, ensuring that the person avoids any ill-advised decisions.
Below is a discussion of rental property return investment tips and the benefits people can receive from them.
Tips on Rental Property Investment
Like any form of investment, it is best that people equip themselves with basic real estate knowledge. One of the worst things you can do while investing is making a rushed and poor decision that could lead to a significant loss.
It is possible to have an agent, but it is still necessary that people have some knowledge on their own to better understand the process and decision-making process.
The following section will tackle some tips you can follow when investing in rental properties and their benefits.
1. Evaluate If You are Cut Out to be a Landlord
Being a landlord is not just about collecting money from tenants. The landlord has numerous responsibilities before a tenant arrives.
A landlord should be able to scout for the right properties, prep the units, provide maintenance services, and find reliable tenants.
You can hire a property manager to handle these things, but you will need to pay for their service. While it will require more work and time to do things on your own, learning how these things work will save money in the long run.
This is something everyone should consider first before starting their investment journey. People need to understand the work they have to put in before reaping the benefits. If they can do so, it can become a stable source of income.
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2. Finding the Right Location
One of the most essential factors you need to consider when investing in a property is its location.
The last thing you would want is to invest in a property in an area that is already in decline.
Evaluating the area thoroughly based on the amenities, establishments, and transportation are some of the basic factors to consider.
Another thing to consider is looking for an area that has low property taxes and a growing job market. This increases the prospects for potential renters.
3. Search for the Property with the Appropriate Price
Like with any product, doing some research on prices is a recommended step before buying a property. When you purchase a property, you need to take into account the other things that may require you to expend more money.
An example would be maintenance fees because of pipe issues. Removing the mold and replacing materials are all part of the budget, so the rule of thumb is to set aside enough cash, perhaps about 50% of the budget for reserves.
Remember that the location plays a significant role in a property’s final price. If it is in an area with emerging neighborhoods, prices may increase but have better amenities and establishments.
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4. Make the Property Attractive
Making the property as attractive as possible is an obvious step in attracting potential tenants.
Cleaning or upgrading the floor, walls, and utilities are necessary to provide an excellent first impression on potential tenants.
This is especially true for properties with no furniture since it emphasizes how clean and sanitized the space is. Any dirt or broken utility can drive away renters, so an emphasis on cleanliness is a must.
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5. Look into Crime Rates
Understanding an area’s crime rates is vital to determine if a location is safe and a good investment.
A high crime rate will result in significant consequences because of the lack of tenants. Many people want to be in a safe neighborhood, and high crime rates will drive out any potential renters.
If a neighborhood has adequate amenities and establishments but has a high crime rate, it could be a bad idea to invest in the area since safety is a priority.
6. Do Some Homework before Listening to Agents
It is safe not to rely on real estate advisors for every decision constantly. Their insights and opinions carry weight because of their vast knowledge, but that does not mean you should follow their advice each time.
Doing some research can provide a better understanding of any form of investment. It allows each person to make an educated decision with the help of the advisor. It also opens discussion with the professional, allowing both sides to develop a well-thought plan.
7. Check out Networking Groups
Joining a few networking groups may be an option to gain more knowledge about investing and being a landlord.
Do not settle for groups that sell products but look after those that provide valuable information.
Aside from information, these networks should act as a mentorship where it educates people about their interests. These can include types of properties, what to look for in an area, determining good investment returns, and others.
What are Good Returns of Investment in Real Estate?
What is a return on investment (ROI)? An ROI is a way to measure the performance of property investment. The formula to calculate this is annual returns/cost of investment=ROI.
Determining a good return on investment can be a subjective topic. An example is if a person buys a home for $200,000 and rents for $1,500 per month.
Other expenses such as taxes, maintenance, and other miscellaneous fees will affect the return. This leads to the property’s net operating income is $1,000 per month which is $12,000 a year. This results in a cap rate of 6%.
Depending on how the person views this return, it can be good or bad. Many agents would suggest having at least 8% or ROI but should aim for 10% to 12% if possible.
Benefits of Rental Properties
After discussing investment tips and ROIs, what are the benefits of rental properties? The discussion below lists down some major benefits of these properties.
1. Lower Risk Compared to the Stock Market
The housing market is not subject to rapid change unlike other investment options. The earnings between the housing market and the stock market differ in potential. However, the housing market has a steady incline most of the time, making it safer.
2. Steady Source of Income
When a person has enough rental properties, they can rely on it to be a steady source of revenue. However, it is best to have money aside since properties need updates and maintenance services.
3. Property Value Increases
Over time, properties will increase in value. It is best to maintain them since these can allow a person to keep earning revenue. If the value increases, the more money a person can earn.
Things to Remember Before Investing in a Rental Property
Despite the benefits of investment, there are things to consider before getting started. It is not wise to assume that having several properties will earn lots of money. Below is a short discussion of what to consider before investing.
1. Managing Tenants can be Difficult
Running a property is not just managing a tenant. The owner is responsible for maintaining the property, addressing things like faucet leaks, power outages, and other utility issues.
Additionally, many of these factors are unexpected. It will require extra cash to address this, so having a budget for these issues is smart.
2. It can be Cash-Heavy
It is possible to have a steady stream of passive income through real estate investment. However, things like building improvements and property updates are some of the costs that you need to take note of.
If there is no budget allocated, you will have to use your own money or get a loan to cover these expenses.
Having a budget specifically for these fees saves money and allows property owners to address the costs immediately.
3. Not Liquid Investments
Earning money from properties does not happen instantly. It takes time to earn a stable revenue, so the more properties a person has, the more they can grow their profits.
Patience and Perseverance in Investment
Real estate involves several factors for a person to make it a stable source of revenue. Having numerous properties is great, but maintaining and updating them plays a vital role in attracting potential tenants.
Additionally, it is something that will not give cash right away. It takes time to build revenue, and it is a constant process of ensuring the property’s quality.
One notable trend that may change how investors do business is how blockchain plays in the industry.
This involves tokenization and its major benefit of reducing investment ticket sizes. It makes real estate assets tradeable, which can increase investment capital. This technology can raise capital quickly with lower costs, making it an excellent project to pursue.
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