Guide to Rental Property Investment
Buying rental property is very appealing for lots of reasons. Some of the world’s richest people have achieved their wealth through real estate. And it may be the right decision for you if you’re looking for a means to fund retirement, leave a family legacy, create financial freedom, or just bring in additional monthly income. This guide to rental property investment will help you decide if investing in rental properties is right for you.
An important guide to rental property investments is to start by seeking the advice of your financial planner and tax advisor, in addition to finding a Realtor experienced with investing in real estate for rental income. These are important resources for an examination of your particular investing style, risk tolerance, leverage position and more.
Just as important as seeking advice, becoming educated on investing in real estate rentals is critical. You likely didn’t land in your career without an investment in education that prepared you for that specific line of work. It’s no different with real estate. Seek out a proven real estate investing training and coaching program that will guide you step-by-step through the buying process and beyond. Check out LeAnn Riley’s Proven Profit Formula Coaching Program, which can be completed in as little as 60 days and combines online learning and weekly group coaching with LeAnn, who’s been in real estate for 30+ years as a Realtor, trainer and coach. LeAnn also built a multi-million dollar portfolio of investment properties.
Now That You’re Ready, Let’s Move Ahead with Our Guide to
Rental Property Investment…
- First things first-–Pay Down or Pay Off Your Personal Debt. As you know, this personal debt often carries hefty charges: credit cards, student loans, medical bills. It’s best to have most of these bills out of the way before you start rental property investing. Clean up any “financial friction” that you haven’t taken care of like unpaid income taxes, or a personal loan from a relative. Clear the way for a successful start to your rental property investing.
- Find out what financial leverage you have for a down payment, and more. What’s leverage? Leverage is not only money in checking, savings and IRAs. It’s also funds you have access to-–such as home equity, life insurance, a financial partner. You’ll want to know your net worth and the total of what you might be able to come up with for the down payment, the rental property acquisition and the fix-up costs if needed.
- Decide BEFORE you invest if you’re able to be a landlord. If you invest in rental property, you WILL be a landlord, and that involves maintaining the property and updating it as necessary. Are you prepared to fix a hole in the wall, or unstop the kitchen drain? Rental property investors who do the work themselves always come out better on the bottom line than those who have to hire the work done. Being a landlord involves a lot more than taking care of the physical property; you will have tenants to deal with on a daily basis. You will need systems in place to screen tenants, get leases signed, receive monthly payments, take calls and complaints, manage your bookkeeping, and much more.
“I quickly closed on my first short term Airbnb rental, and now I have rental income flowing in.
After working with LeAnn, I gained the knowledge to invest outside of my state with confidence.”
- Assemble a team to support your rental real estate business. Don’t think you can do this on your own. Successful rental real estate investors line up a team of reliable experts to ensure the business functions well, is profitable and isn’t too much stress for the owner. Team members will include an investment property Realtor to help locate the right unit(s), an attorney who will be needed if/when a tenant sues, a tax advisor to ensure you get all the deductions and savings possible, a couple of reputable lenders you can trust, a number of carpenters, handymen, plumbers, electricians, and many more professionals to make this easier and seamless. Get help with some coaching and education on real estate investing and you will be tapped in to resources to figure this out quick instead of with the trial and error approach that is more costly than the right education in the beginning.
- Research the numbers before you invest in rental real estate. What numbers? If you’ve had solid real estate training–-like LeAnn Riley’s Proven Profit Formula Coaching Program–-you’ll have learned the key numbers you must include in determining whether a property is a good deal or a bad deal to be a cash-flowing rental property. These include the obvious: your mortgage and interest payments, taxes, insurance, utilities (could be tenant paid), costs to maintain buildings and land. But also included are needed updates, appliance replacements, occupancy costs, unexpected repairs. Some rental investment advisors suggest setting aside 10 to 20% of your rental income for unanticipated expenses.
- Know your legal obligations. Make sure you have access to an attorney who understands real estate law, can provide advice and be ready to review leases and other documents. But don’t rely totally on the lawyer; as a landlord, you need to be familiar with landlord-tenant laws and statutes in your state and community. Understand tenant discrimination rules, eviction laws (especially in a pandemic), fair housing, tenant rights and more.
- How rental property depreciation works. Real estate depreciation allows you to deduct from income taxes the costs of buying and fixing up your property over a period of years. Generally, most U.S. residential rental property is depreciated at a rate of about 3.5% per year for about 27 years. Rather than taking one large deduction when you buy or improve the property, the depreciation is spread over a number of years across the life of the property. The IRS allows you to depreciate rental real estate if: 1) you own the property, 2) you use the property as an income-producing activity or some other way in your business, 3) the property has an estimated useful life, and 4) the property is expected to last for more than one year.
For the rest of This Guide to Rental Property Investing, We’ll Take a Look at What Makes a Profitable Rental Property.
- Neighborhood – The neighborhood you choose will determine what type of tenants you can expect to attract. An A neighborhood will generally draw an upper middle class tenant, while a C neighborhood most likely will attract tenants on a supplemental income program.
- Schools – If you intend to attract young families as tenants, check for the reputation of the school district and proximity of schools to your rental.
- Attractions and Amenities – Walkability, parks, restaurants, public transportation and gyms are attractive to families, singles and seniors.
- Rental Rates – Check for comparable rental rates in the area to determine what rate you’ll set for your property.
- Types of Rental Properties – Buying a single family home, townhome or condo is often a good way to get started in rental real estate investing.
Wishing you well in your rental real estate investing.