The ultimate goal of every real estate investor is to make as much money as possible from rental properties. However, finding out how to do that is challenging for beginners with no previous experience in the housing market. That’s why we’ve put together this guide with the 6 best tips and tricks which will help even newcomers maximize return when starting investing in real estate.
To learn more on this topic, make sure to also watch our video on real estate investing for beginners, available below.
Tip #1: Find One of the Best Places to Invest in Real Estate
Learning how to invest in real estate starts with learning how to choose a profitable location. Where your rental property is located is a key determinant of all factors that affect profitability.
The housing market impacts median home values and average mortgage rates, which in turn determine the size of the down payment, the closing fees, and the monthly mortgage payments. The real estate market also impacts repair costs, property tax, home insurance, utilities, property management costs or fees, and cleaning fees. This means that it is a crucially important factor in startup costs and recurring expenses when investing in real estate.
Additionally, the place where you buy an investment property defines rental income for both traditional rental properties and Airbnb rentals as well as the monthly and daily rental rates, respectively. So, the rental income side of any return on investment formula in real estate is also determined by the location.
To choose the best places to invest in real estate in 2020 and beyond, you should conduct diligent real estate market analysis. This should factor in both housing market factors such as the state of the market (buyer’s market vs. seller’s market), property prices, and rental rates and other factors such as economic growth, the labor market, population growth, tourism, and others.
Moreover, it is important to analyze not only the city but also the neighborhood which is best for investing in real estate rentals. Neighborhood analysis is an integral part of any real estate analysis as areas within the same city or town can vary significantly when it comes to opportunities for buying rental property.
To get access to comprehensive readily available neighborhood analysis in all US housing markets, sign up for Mashvisor.
Tip #2: Diversify Your Search for Rental Property for Sale
Once you’ve decided on the best location for investing in real estate within your budget, it’s time to get started with the investment property search. To optimize results, make sure to try out different sources of real estate listings. Despite the technological advancements in the real estate industry in recent years, driving for dollars, hiring a real estate agent, and local newspapers with property listings are still viable options. However, it is equally important to include home buying websites in your rental property search as well.
When it comes to real estate websites, focus on real estate investment software platforms like Mashvisor. In addition to for sale listings, such websites also provide real estate investors with various types of analysis needed for making profitable investment decisions. Searching for investment properties for sale on Mashvisor will save you months of research and analysis as you get immediate access to rental property analysis to hundreds of thousands of MLS listings, foreclosures, and off market properties listed on the platform. Not to mention that you can analyze any property in the US housing market by entering the address.
Related: How to Analyze Off Market Properties
Tip #3: Focus on Single Family Homes
When first figuring out how to get into real estate investing, it is best to start by buying a single family home. Investing in single family homes comes with many advantages.
First and foremost, single family homes are significantly cheaper than multi family homes. Affordability is a crucial factor for beginner real estate investors as it makes financing easier and the risk of foreclosure lower. Moreover, buying cheap real estate properties pushes the rate of return on a rental property up.
In addition, a single family home is easier to maintain. It also markets better and attracts good tenants such as small families. This means less expenses on fixes and repairs, receiving rent on time, and lower risk of having to deal with eviction.
Last but not least, single family homes experience the best real estate appreciation in the US housing market. This means that when investing in real estate in this property type, you will maximize your return on investment not only in the short term (through rental income) but also in the long run (through appreciation).
Tip #4: Perform Rental Property Analysis
When making real estate investments, conducting all required types of research is key for maximizing profitability. That’s why the next tip for all rental property investors, and especially beginner ones, is to conduct investment property analysis on a few properties which they have located during their search.
Performing detailed rental property analysis is the only way to assure that you are investing in positive cash flow properties with a high return. You should have a look at both the expected one-time costs and recurring expenses and the estimated rental income. Having these figures will help you calculate the cash flow as well as different types of rate of return such as cash on cash return and cap rate.
In your analysis of an investment property for sale, make sure to base your calculations on the actual performance of real estate comps and rental comps from the area. To do this, you should conduct rental market analysis to find out the rental income which comparable properties are able to generate in the neighborhood of your choice. Depending on your preferred rental strategy, you should focus on long term rental properties or vacation home rentals.
Tip #5: Use Top Real Estate Investment Tools
One of the best tips by far to maximize return when investing in real estate income properties is to get access to online real estate investment tools. The real estate investing business is a highly competitive one, where experienced investors have major advantages over beginners. To stand on equal footing with experienced investors, new ones need to use a real estate investment app.
Mashvisor’s platform has turned 3 months of research into 15 minutes, allowing even beginner real estate investors to catch the best deals before someone else snatches them. Mashvisor’s real estate app works as both a traditional rental property and an Airbnb analytics platform. It uses actual real estate data as well as traditional and Airbnb data to provide both neighborhood analysis and investment property analysis with a high degree of accuracy.
Here’s a list of the must-have real estate investment tools available on Mashvisor:
- Heatmap: Our real estate heatmap tool helps you find areas with low property listings prices, high traditional and Airbnb rental income, optimal traditional and Airbnb cash on cash return, and above-average Airbnb occupancy rate.
- Property Finder: The smart Property Finder tool helps real estate investors locate an investment property for sale in their preferred market, within their budget, optimal for their rental strategy, and with high return on investment.
- Investment property search app: The investment property search tool allows a real estate investor to look for rental properties based on a wide range of factors including city, neighborhood, price, traditional and Airbnb income, traditional and Airbnb cash on cash return and cap rate, and many others.
- Rental property calculator: The investment property calculator provides readily available rental property analysis with all the figures which investors need to make profitable decision when investing in real estate. Importantly, the investment property analysis is provided for both traditional income properties and Airbnb rental properties.
Tip #6: Choose the Best Rental Strategy
Yet another of the best ways to invest money in real estate for maximum return is to select the optimal rental strategy for your market and property type. Nationwide real estate market analysis conducted by Mashvisor reveals that different locations yield different rate of return for long term and short term rental properties. Moreover, different property types are better for each strategy.
Thus, once you’ve purchased a property investment, it’s crucially important to rent it out in the best way for your location. This is not only how to make money in real estate but how to make the most money from your rental property.
Investing in real estate properties remains one of the best ways to make money, regardless of the current situation. However, it’s important to not just buy home to rent out but to invest in a rental property with a high profitability. To maximize your short term and long term return on investment, follow the 6 tips and tricks listed above.
To start making profitable real estate investments today, sign up for Mashvisor.