Residential real estate, in its simplest form, aims to provide a living space, or an accommodation, for people. Becoming a residential real estate investor, however, can be considered a business opportunity. Residential real estate investing is the buying, owning, and managing of a real estate property which is then rented out to tenants. The residential real estate investor can do so by placing the property for rent either on the market for short-term rentals or on the market for long-term rentals. In both cases, the residential real estate investor becomes a landlord and receives rent from his/her tenants, also known as rental income. Another possibility for residential real estate investing is the, so called, fix-and-flip. If you are interested in becoming a residential real estate investor in no time, explore the section below for advice and tips on the topic.
How to Become a Residential Real Estate Investor?
As previously mentioned, there are three main ways of becoming a residential real estate investor:
#1 Invest in Long-Term Rentals: Become a Landlord
Becoming a landlord is the most common way of becoming a residential real estate investor. Being the landlord of a residential property, however, does not only mean that you own the property and collect rent for leasing it. The landlord is in charge of maintaining the rental property as well. If you want to be successful in this real estate business and generate positive cash flow from your residential property, you need to be there for your tenants and take care of your real estate investment.
#2 Invest in Short-Term Rentals: Become an Airbnb Host
Becoming a residential real estate investor through renting out on Airbnb is another widely popular real estate investing opportunity. The short-term rentals are usually leased for higher price per night. However, that does not always mean that you will get higher rental income. An Airbnb host needs to take care of the investment property constantly by not only fixing it, but also cleaning it, restocking needed items, and preparing it for its next occupants. Even though they require time and effort, Airbnb rentals offer a great chance of making money out of real estate investing, if you maintain them properly.
#3 Invest in Fix-And-Flip
A residential real estate investor usually buys a low market value property. These residential properties are cheaper due to their bad condition or need of renovation. The purpose of buying such a residential property is fixing it and selling it at a higher price, and thus, making money out of this real estate deal. The fix-and-flip method of becoming a residential real estate investor, however, requires longer time for plan execution and a team to help you in fixing the real estate property as well as higher start-up costs. For these reasons, more realtors prefer investing in a rental property.
How to Start Investing in Residential Real Estate for Rent?
Let’s review the things you as a future residential real estate investor need to consider before investing in a real estate rental property.
#1 Create a Business Plan: Set Your Goals and Your Budget
Creating a business plan is a crucial step to every investment career. The same is valid for investing in residential real estate. It is wise to include your goals, the way of reaching them, and some time slots. Most importantly, constantly keep track of your budget. This is vital for the success of your residential investment property.
#2 Choose the Right Location
As you probably already know, the location is of key importance for the growth of your residential real estate investing. Choose a location with more potential tenants. Do not necessarily focus on the hot destinations in the housing market. Be sure to find an affordable residential property with opportunity for development.
#3 Carefully Choose the Property Type
There are different types of residential real estate properties. Such are, for instance, single family homes as well as multi family homes. Every type of real estate property attracts a different target group of tenants and requires a different approach for success. The right type of residential property should fit in your budget and your business plan. If you choose to invest in single family homes, for example, be sure there is a demand for this type of investment property at the location of your choice.
#4 Select the Best Real Estate Investments
Selecting the best residential property can be tricky, especially for a new residential real estate investor. A great idea is to use an investment property calculator. This real estate tool quickly computes cash on cash return and cap rate as well as potential rental income. It helps in analyzing the residential properties and easily comparing them to one another in search for the best one. Mashvisor’s investment property calculator also provides you with unique data such as detailed information about the chosen neighborhood and property. Furthermore, it suggests the optimal rental strategy for your residential real estate investing.
Related: Mashvisor’s Investment Property Calculator: Real Estate Investing Made Easier
#5 Choose the Optimal Rental Strategy
As previously described, there are two main rental strategies when it comes to residential properties: Airbnb rentals and traditional rentals. Choosing the optimal rental strategy for your residential real estate investing depends on the property type, but also on the location and the demand for rentals in your area. Take your time and investigate all possible variables before making this important real estate investing decision.
Related: Traditional Rentals vs. Short-Term Rentals: Which One is the Right Rental Strategy for You?
#6 Establish the Appropriate Price for Rent
The residential real estate investor needs to charge a rent which is neither too high nor too low. If you charge a rent which is too high, it is likely that your residential property stays vacant. If your requested rent is too low, however, it is impossible to generate positive cash flow. When setting up the rent, take in mind the property type, the features of the property, the location, the average rent charge in the area, etc. Also, calculate the market value of your residential property: the rent should typically fall between 0.8% and 1.1% of this value.
Related: Single Family Homes: How Much to Charge for Rent
#7 Carefully Select Your Tenants
Many residential real estate investors neglect this step, when they should not. Finding good tenants is the only way you will succeed in residential real estate investing. It is important to carefully select the occupants of your residential investment property. Tenants who destroy your real estate property or do not pay rent regularly will result in too many costs for the real estate investor. Consequently, the residential property will generate negative cash flow, something which all realtors strive to avoid.
Becoming a residential real estate investor is not a simple task. Nevertheless, if you invest time, effort, and diligence, you might become very successful in the field of residential real estate investing.