Would Renting Or Buying Work With Your Timeline?

Your primary residence should be considered a feather in your cap. But maybe you want to make property ownership a step further. Owning and maintaining an investment property can be a lot of work, but the payoff can be substantial. This article will define what an investment property is, the different types of investment properties, the pros and cons of owning an investment property, and how to buy one.

Residential properties are places zoned for living or dwelling. These include single-family homes, apartments, and more. Renting out residential properties means you’ll be dealing with tenants who live in your property.

Research the neighborhood and comparable rental properties before investing.Duplexes – Two-unit homes separated by a wall or a floor. Make sure the separation is apparent, with distinct mailboxes and entrances. Bonus points if the separating wall or floor has good insulation. Apartment buildings – These multi-unit structures require more work but can result in a higher income.

They also require much more capital to purchase than a single-family home or a duplex. Unless you can make being a landlord a full-time job, consider hiring a property manager to collect rent, make repairs, and handle tenant relations. Townhouses – One of the most difficult parts of investing in townhouses is finding the right lender. Many lenders have a difficult time with townhouse classification and appraisal. Also, know that townhouses don’t appreciate in value like single-family homes. Condos – Condos are usually a less expensive investment than a single-family home. You could buy one in a popular vacation area to use when you want and rent the rest of the time. Just make sure you find a quality one with a responsible property manager.

Buying Is Smarter Than Renting

A rental property is a residential or commercial property that’s leased or rented to a tenant over a set period of time. There are short-term rentals, like vacation rentals, and long-term ones, like those under a one-to-three-year lease.

Investing in rental properties is a great starting point for real estate investors. Rental properties can provide cash flow and generate value from appreciation. Investors also get tax incentives and deductions from owning real estate. While it can be a lucrative method of real estate investing, there’s a lot to know before investing in rental properties. This comprehensive guide will show you how to start investing in rental properties as a beginner. Well, go over what it takes to invest in rental properties, common mistakes to avoid, and things to know before you buy your first rental.

Renting Out A Property For The Long Term

single-family homes, retail space, and multi-use.Residential rental properties are often more accessible to beginners because they’re less expensive. Less money is required upfront and that often means that it’s easier to get financing. While there are exceptions, residential rental properties are also typically easier to manage. In most cases, managing one tenant is easier than managing twenty. For these reasons, this comprehensive guide to investing in rental properties is focused on residential rentals. Most investors buy a rental property with the goal of producing positive cash flow — earning more income each month than they spend on expenses.

Not every rental has a positive cash flow at first, but building up to one is a common goal of rental investing. Owning a rental property is an active form of real estate investing and requires time, dedication, and involvement. Being a landlord isn’t for everyone. As you’ll see, there’s much work involved in identifying, analyzing, buying, and managing a quality rental property. While there are options for outsourcing some of these active tasks, it’s barely 100% passive, and there are always risks. Do you think investing in a rental property might be a good idea for you? Keep reading to find out where to start and how to best prepare yourself for the project at hand.

Renting Out Your House Or A Property On A Short-Term Basis

Rental property investment refers to real estate investment that involves real estate and its purchase, followed by the holding, leasing, and selling of it. Depending on the type of rental property, investors need a certain level of expertise and knowledge to profit from their ventures.

Real property can be most properties that are leasable, such as a single unit, a duplex, a single-family home, an entire apartment complex, a commercial retail plaza, or an office space. In some cases, industrial properties can also be used as rental property investments. More commercial rental properties, such as apartment complexes or office buildings, are more complicated and difficult to analyze due to a variety of factors that result from a larger scale.

For older properties, it is typical to assume higher maintenance and repair costs. Rental property investments are generally capital-intensive and cash flow dependent with low levels of liquidity. However, compared with equity markets, rental property investments are normally more stable, have tax benefits, and are more likely to hedge against inflation. Given proper financial analysis, they can turn out to be profitable and worthwhile investments. The Rental Property Calculator can help run the numbers.IncomeThere are several ways in which rental property investments earn income.

The first is that investors earn regular cash flow, usually on a monthly basis, in the form of rental payment from tenants. In addition, as with the ownership of any equity, rental properties give the investor the possibility of earning profit from the appreciation or increase in value over time, of the property.

Unlike rental income, a sale provides one large, single return.ResponsibilitiesRental property investing is not passive income. It requires time and work. The investor or owner has to take on the role of the landlord and all the job responsibilities associated with it. General responsibilities of owning a rental property include

Tenant Management—finding tenants, performing background screenings for potential tenants, creating legal lease contracts, collecting rent, and evicting tenants if necessary.

Property Maintenance—repairs, upkeep, renovations, etc.

Administrative—filing paperwork, setting rent, handling taxes, paying employees, budgeting, etc.

It is common for rental property owners to hire property management companies at a fixed or percentage fee to handle all the responsibilities.

Investors who have limited time, who don’t live near their rental property, who aren’t interested in hands-on management, or who can afford the cost can benefit from hiring a property management company. This is roughly estimated to cost about 10% of rental property income.

Advantages of Renting

There is no oracle regarding which rental properties are best.  You’ll be assessing more than cap rates, price to rent ratios, employment data, house price trends, etc.

Take your time to sift through and assess regional economic conditions, demographic trends, tax conditions, residential bylaws, unit types and sizes, local business districts, employment rates, and other important data to identify the best city and neighborhood for you. There are city ratings related to lifestyle and livability that may weigh on your final decision.

The economic outlook of each city will give you further support for buying. Below, you’ll find a breakdown and detailed statistics from top data providers showing cities with the best potential. From there, you can break it down into specific high-quality neighborhoods to weigh the profit odds in your favor. Rent Growth by City. Screenshot courtesy of Apartment list.

Become A Successful Real Estate Investor By Renting Out On Airbnb?

In the world of real estate investing, one of the choices a real estate investor has to make is which rental strategy to follow – traditional or Airbnb. Some income property investors opt for the traditional rental strategy because they consider Airbnb rentals too risky and too much work. However, what really determines which rental strategy is the best is actually the location of your rental property. Some areas are suitable for traditional renting, while others are better suited for Airbnb.

The reason why determining the rental strategy is a success factor in real estate investing is that the rental strategy will ultimately affect your rate of return on investment. For example, when investing in a rental property in a location with strong tourism industry, a successful real estate investor would invest in an Airbnb ( short-term ) rental because it would yield higher returns than a traditional ( long-term ) rental.

Cost of Renting vs. Cost of Buying

While single-family rental properties are one avenue of investing, they’re not the only option. You could own a duplex, triplex, quadplex, or something even larger (if you’re interested in commercial rentals). Decide if you’d like to own vacation rentals or long-term rental properties, too.

No matter what property type you choose, it’s essential to know what qualities of that property type are in demand. This includes the size of the unit or home, the number of bedrooms and bathrooms, or possible amenities such as a pool or fireplace. Find out if there’s an oversaturation or undersupply of a specific property type. You might find, for example, that an area has too many one-bedrooms and few two-bedrooms available for rent. You can do this by looking at the current inventory on the market on real estate rental industry sites such as Zillow , HotPads , or ForRent.com .

Talking to a local real estate agent is another great way to get information on a specific market. Make sure you know what you’re looking for in a rental property, including square footage, a number of bedrooms or bathrooms, type of build (e.g., wood or concrete), type of parking available, and property type (e.g., single-family residence, condo, townhome, duplex, triplex, or fourplex). It’s not uncommon to have different sets of criteria for different neighborhoods.

How To Figure Out If Renting My House Is Worth It

Beginning real estate investors often want to purchase rental properties in their backyard. That could mean in the same ZIP code as their current residence, the same city, or the same state. However, this may not be an option depending on the market you live in, nor is it always the best choice. If you live in a neighborhood where property values are on the upper end of the market, rent may not support a positive cash-flowing rental property. Maybe you live in an expensive market like San Francisco, where the average single-family property was $1.6 million in July 2019.

You might not have the funds available to buy a rental property nearby. If that’s the case, look in other markets for your first investment. While it may be easier to manage a rental that’s only 10 minutes from your home instead of two states away, you can invest in any market. If you’re not going to invest in your backyard, take a high-level view at other markets, looking for areas that meet these criteria: The demand for rental properties is high — housing supply and vacancy rates are low. Job growth is stable or growing. Economic expansion, job growth, and population growth are good indicators.

The average rental income supports the purchase price of the rental property and aligns with the funds you have available to invest. A $200,000 rental property won’t generate much of a return if you can only rent it for $700. And if you only have $20,000 to put down, you probably won’t get bank financing on a $200,000 rental property. There are several free and paid resources to help you conduct market research on various areas of the country, including our own guide to the best places to buy a rental property in 2020. Use them for information on economic growth, housing demand, vacancy rates, average income, and average housing prices in different areas. Any specialized markets to stay away from or target — such as student or affordable housing.