The reason why this is such an excellent business opportunity is the slow but steady return on investment you can expect over time, as well as the fact that it requires very little time and energy.
The entire process of acquiring the property, doing renovations, and screening tenants can take days instead of months and years like in some business cases. This means you can invest a little bit of your time and expect a good stream of income in the long run.
However, while this all sounds super easy, not everything is so simple. This is certainly the case when you are buying a fixer-upper or rehab property. Here are all the things you need to know about rentals that will allow you to build long-term wealth.
Expensive Isn't Always Better
While it’s excellent to own valuable property, if you’re looking to make money by renting, you need to focus on return instead of value. When you have an expensive property, you will automatically narrow down your tenant offer and make it more challenging to make money.
Also, in order to actually earn something, you need to make your rent high, and there’s no way you can increase rent indefinitely. Most expensive properties won’t provide you with a corresponding rent increase, no matter how nice they look.
So, often, it’s better to opt for an average or lower-value property that will bring a better return. Ideally, you want to get a return of 1 or 2 percent of the value of the home each month you collect rent.
Make an Excellent Strategy
In order to build your wealth, you need to have a solid plan and stick to it. The education stage should be your first stop (it will help you gather data and prepare yourself for being a landlord).
Later, you can start the accumulation stage that will allow you to gather funds and buy your rental property. There will be quite a few mortgage options when it comes to buying rental property. You should have a solid understanding of the financing choices before rushing into a purchase.
After this, you need to go through a transition stage where you’ll cover the loans and try to break even.
Once you’re debt-free, you can enjoy your self-sustaining way of acquiring wealth. The plan is simple, but it works! If you are comfortable with taking a few risks, you can reinvest any surplus to increase your revenue faster, instead of focusing all your time on covering all your debts as soon as possible.
Pick the Right Property
The location of your property is probably the most crucial factor in real estate. You need to have a property located in a top-shelf neighborhood where the crime rate is low, and there is plenty of excellent schools, parks, and job opportunities.
For that reason, it’s best to find a good real estate consulting firm that will help you find a perfect property with a terrific return on investment. Professionals can also offer fantastic information regarding the trends on the market, which are always useful. One of the roles of a buyer's agent is to guide you into making the right business decision. Lean on a top local agent whenever possible.
They can also tell you about the future development plans in the area, which can tell you how the price of your property will vary down the line.
Choose The Right Tenants
In order to generate real wealth from your rental, you need to be knowledgeable about real estate as well as psychology. When you’re choosing your tenants, you need to learn how to recognize certain red flags and see through their efforts to make them look like green flags. With this, practice is all you need.
One of the situations you will probably run into is renting to a tenant with poor credit. Under these circumstances, it will be prudent to collect extra money upfront.
You will go over some bumps, but it will be worth it. You will go over some bumps on your way, but it will be worth it in the end. When you decide to move on from a certain investment property, you'll want to be comfortable with the selling process, especially if the tenant still remains.
Find Your Niche
Professionals in a single field always acquire better returns and get more customers, so why not become a pro in your little niche?
Conquering a single niche will reap the greatest returns on investment and allow you to reach investors and gain further expertise. Being an expert in one thing will allow better growth while spreading yourself too thin is very risky. But, you must have patience since investing in real estate is a process that begins with a single property and requires growth.
Your safest bet is to start with a single investment, learn, observe, gather information, find yourself, and gain trust—passive income and long-term wealth will soon follow.
Work With a Professional Advisor
A good tax advisor will help you get all the correct information and allow you to enjoy all sorts of tax benefits as your wealth grows. You can expect various deductions on interest, depreciation, repairs, and travel. You can even get deductions on professional services regarding the management and maintenance of your property and get reasonable insurance premiums.
Your advisor can also give you tips on financing options before making a decision. While sometimes, cash is the answer, other times, it’s better to opt for mortgages that will allow you to own multiple properties partially financed by the bank (just consider the higher returns). If you’re a first-time landlord, hiring an advisor can be just the right move for you.
If you’re looking for a quick way to kill your income, then sell your property by all means. If you can’t rent or continuously lose money, you might choose to sell, but otherwise, you need to keep your property as long as you can in order to build wealth.
It's also possible that you may be approached by one of your tenants to purchase a property. Any landlord should be familiar with how rent to own works, in case this situation comes up. There are pros and cons all owners should realize.
Patience is the key to investing in rentals, so keep your head cool and don’t start over-investing in order to speed up your money flow. If you’re a beginner, start slow, avoid investing in too many properties at once, and don’t rush into selling.
Once you pay off your mortgage, almost 100% of your income will flow directly into your pocket. And if you choose to reinvest, you can grow your wealth quickly.
These tips will help you generate a stable source that will allow you to reinvest and produce long-term wealth. Of course, the money you make will depend on your patience, expertise, and persistence, but definitely keep these tips in mind when trying to build your wealth.
Other Helpful Real Estate Articles Worth a Look
What is a pocket listing - if you are selling a home you need to be careful of some real estate agents who will try to convince you to sell your property as a pocket listing or in-house sale. The vast majority of the time, selling this way is not in the best interests of the client. It is great for a real estate agent, though.
Tips for selling a house as-is - are you considering selling your home in "as is" condition? Before doing so, you should know the pros and cons. Take a look at the excellent advice from Paul Sian.
What's the purpose of earnest money - when buying a home you will be required to put up what is known as an earnest money deposit. See why earnest money is so essential in a real estate transaction, especially for a home seller.
When buying or selling a home, it is critical to do proper research. Being educated about the process helps prevent mistakes from happening.
About the author: The above article on building wealth with rental properties was written by Chloe Taylor. Chloe is a graduated journalist from Adelaide and a writer for Smooth Decorator. She loves everything related to home decor, aesthetic, and lifestyle topics. Chloe is also an avid fan of all kinds of photography.