Flipping houses is in the news a lot because so many fortunes have been made doing this-more than a few have been lost in this venture as well but those don’t make the news nearly as often.
Working with rental properties isn’t nearly as glamorous and doesn’t provide the almost instant profits that flipping houses might but it is also a great and very valid method of real estate investing that will build a steady profit over time if you plan properly. Rental properties are in demand now more than ever with so many people going into foreclosure and losing the homes they’ve worked hard to build for their families. For this reason rental properties are a good thing to own at the moment, especially those that are family homes.
There are many reasons that people rent and while there are some risks involved when renting properties, the risks are much lower than the risks involved in flipping or pre-construction investment endeavors. There are a few things you should consider when purchasing a property for the sake of renting however in order to make a wise and long lasting decision for your real estate investment.
First, only invest in rental properties in areas that people want to live in. It may be true that you can buy property cheap in a few very run down sections of town but it is doubtful that you will turn those properties into profitable rental units. It is best to pay a little more for a more attractive address for renters. You will find that your properties are inhabited more often, which will make you more money in the long run.
Second, pay attention to the types of people in the area and buy rentals accordingly. It is quite possible to turn large homes into multiple smaller apartment units (according to local zoning laws) that are ideal for college students. You do not want to do this however in an area that is geared towards family homes and won’t be friendly or tolerant of college students. Design the rentals according to the market you are attempting to attract.
Third, don’t be greedy. The goal of owning rental properties is of course, to make money. At the same time if your price your properties too high you will find that they sit empty more often than not. Every month that your property is empty is a month that you aren’t making money on that property at best and a month that you are losing money at worst.
Fourth, know the market. Study the local market for buying real estate and renting real estate. This will help with many things, not the least of which is determining whether or not any given property will make an attractive rental unit. Another thing it will help you determine is how much rent the units you are considering can bring in month after month.
Finally, when renting properties you need to keep your eye on the long-term goals rather than shortsighted goals. Property rental is a marathon rather than a sprint with the greatest profits coming at the end. You will want to pay as little interest on the property as possible and pay the property off as quickly as possible in order to realize the maximum profit potential and acquire new properties. The real money when renting properties as a real estate investment isn’t in renting out one or two units but twenty or thirty. The more rental properties you own the more money you stand to make from owning them.