Ever wondered how to invest in rental properties? Or how to be successful in real estate investing? Don’t shy away, buying a rental property is not as difficult as one might think. When planned cogently, rental properties bring about a high return on investment. In fact, from a financial standpoint, buying a rental property is at the top of the list of assets to own. When you invest in rental properties, you have a hedge against inflation and make the most money during inflation. Read to learn more!
What does it take to be one of the most successful real estate investors? Today, we will tell you about the strategies that you could use when investing in rental properties.
First, Why Should You Invest in Rental Properties?
You are your own boss: If you decide to dedicate your career to buying and managing rental properties, then you are your own boss. You are the decision maker. This means that you will choose the property, select tenants, decide on rent to charge, and finally ensure maintenance of your rental properties. This may sound assiduous, but it is not so if you create an excel sheet and carefully list all of your responsibilities. You will soon get the hang of it and even start expanding your real estate assets.
Appreciation: Another reason why you should invest in rental properties is property appreciation. While you will be receiving a rental income from renting your investment property, your property value will increase in time and be worth much more than what you initially bought it for.
What makes investing in rental properties even more fruitful is using leverage. When you finance, let’s say, 90% of an investment property through debt and the remaining 10% through equity, your property will appreciate as a whole. To put this in perspective, let’s assume you are investing $10,000 of your own money to buy a rental property of $100,000. The rest ($90,000) is then financed through debt. Let’s suppose that your investment property will appreciate by 5% each year. In one year, your investment will be worth $105,000 and in ten years it will be worth $162,000. Not only will the investment property appreciate, the appreciation is on the entire investment, not just on equity.
Tax Deductions: Rental properties enjoy many tax benefits that make investing in such a vehicle a more preferred investment type. When buying a rental property, you will get tax deductions on interest, home office costs, insurance, and repairs. Note that repairs can be very costly. Thus, deducting for repairs associated with the rental property will lift off some of the financial burdens.
Now, How Do You Ensure the Best Strategy When Buying Rental Properties?
Buying a rental property involves three important steps. If you excel in each of these steps, your investment property will make you big gains and high cash on cash return and return on investment. What are the best rental strategies then?
Getting the right education is the first step to excelling in the real estate investing business. This is the type of business that if you don’t know what you’re doing, you will lose a lot of money. Read a lot about rental properties, talk to real estate investors, and even take real estate investing courses online. Reach out to real estate agents and ask them for advice. Learn from their experience. Make sure to reach out to those professionals who can give you what you are looking for.
Second, Location Location Location!
When buying a rental property, you want to look for a location that has a strong economy and one that enjoys a high return on investment properties, particularly rental properties. The best location for rental properties is that with low property taxes, a decent school district, low crime rate, a growing job market and plenty of amenities.
Lastly, Financing and Planning
Planning your investment properties becomes the most important step in succeeding as a real estate investor. Write down steps necessary to achieve a successful real estate investment and do not forget to enumerate all costs associated.
Operating expenses on your new property should be between 34% and 80% of your gross operating income. We recommend, however, using the 50% rule. So if the rent you charge is $2,000/month, expect to pay $1,000 in total expenses. Maintenance costs, additionally, should not exceed 1% of the property value annually. Other fees include insurance, possible HOA fees, property taxes, and landscaping.
What about the return on investment? So, for every dollar you invest, what is your return on that dollar? What cash on cash return should you expect? For rental properties, we recommend having a 6% cash on cash return in your first year.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Airbnb Makes Another Great Rental Strategy
Should you invest in traditional rental properties or Airbnb? While single-family homes and multi-family homes are the most popular types of rental properties for a long-term rental strategy, Airbnb makes a good strategy for these as well. As a matter of fact, Airbnb makes an effective investment strategy if you are looking to invest in short term rentals. Before considering an Airbnb investment property, you should consider tourism within your desired location. Tourism, in fact, is an important indicator of the status of Airbnb in that particular location. Ultimately, the best location for Airbnb rental properties is where tourism is off the charts. Also, make sure to learn of the daily fees in order to build your financials on.
Finding a rental property may not be a difficult task. However, finding the right investment property based on quantitative and qualitative data becomes a lengthy process that requires a lot of time and effort. This is where Mashvisor comes in. Using Mashvisor will enable you to find a property fast. In fact, Mashvisor’s platform offers various real estate market analysis tools and functions to help you find the right investment property without expending so much time and effort.
Mashvisor’s property finder tool, for example, enables you to screen for top-performing properties within a desired location. You can also use the map function allowing you to pinpoint the locations of properties and a heat map function to assess the properties based on your value choice.
Mashvisor, moreover, will help you conduct property analysis. The tool can provide you with valuable information about the investment property. This includes property price, cap rate, cash on cash return, and many other metrics. The platform further allows you to filter properties based on the type of investment property whether condos, single-family homes, multi-family homes, studios, or apartment buildings. What makes Mashvisor’s rental property finder more distinguishable is the fact that it can provide you with data on both traditional and Airbnb rental properties. Thus, allowing you to conclude on the type of rental strategy to best suit your investment goals.
Therefore, rather than spending hours, days, or even months researching investment properties and doing calculations, refer to Mashvisor’s property finder. Not only will Mashvisor’s property finder tool help you scan for properties faster, it will also offer you exhaustive comparative market analysis.
The bottom line is to invest in rental properties today! If you are looking for an investment property that will generate a positive cash flow while receiving tax deductions, investing in rental properties makes such a viable option. Refer to Mashvisor’s real estate investing tools to save you a lot of time. At Mashvisor, we take pride in providing solutions to reach your goals in just a single click of your mouse.