Real estate investments can be lucrative, no doubt about that. As a matter of fact, real estate has produced more millionaires than any other sort of business in the world.
That said, real estate investments aren’t a guaranteed path to easy money. To be successful, everything needs to be done right.
So, as a rental property owner, what can you do to grow your passive income from real estate? Well, this is exactly what this blog will cover. The following are helpful tips that can help set you up for success in achieving your investment goals.
Tip #1: Choose your rental property investment wisely.
This is where many real estate investors often go wrong. They make quick decisions without doing ample research. Research, research, research – this is the backbone behind any great idea.
To avoid any potentially costly real estate mistakes, you need to carry out ample research on the right property to invest in. Alternatively, hire a professional to help you in this regard. You should especially consider the latter option if you lack the experience or simply don’t have the time.
You can’t afford to make any bad decisions when it comes to buying an investment property as this can seriously dent your financial coffers.
So, what are some of the things you can do to ensure you avoid common investment mistakes?
- Physically visit the investment property you intend to buy
- Carry out a real estate market analysis to determine the potential ROI to expect
- Check the property’s condition and review the tax history of the property
While most things in the research phase don’t necessarily require expertise, hiring an expert is often the best thing to do. Due to their experience, they are usually able to sniff potential issues a mile away.
Tip #2: Don’t limit yourself to your local area.
With rental properties, you can basically invest anywhere you want. You don’t have to limit yourself to buying investment properties in your town or state.
By being able to invest elsewhere, you may be able to find great real estate investments that you wouldn’t have otherwise found if you limited yourself to your locality.
So, what should you be looking for when considering out-of-state real estate investments? Just as you would with properties in your own state, you want to choose areas with:
- Vibrant local economies
- Low unemployment rates
- High occupancy rental opportunities
- High per-capita incomes
Tip #3: Choose properties with a high cash flow potential.
This is where most investment properties differ. A property located in a lush neighborhood with good security and public amenities has lesser risks and will most likely provide you with a stable income.
On the other hand, an investment with a potential for high returns comes with higher risks as the stakes are often quite high.
Tip #4: Always inspect the property you intend to buy.
Before buying an investment property, always insist on having it inspected first. This is the only way to make sure that you are getting your money’s worth.
Generally speaking, most sellers will usually stage their properties prior to listing them. This essentially means making the most of the property’s best features. For example, painting, carrying out important renovations and/or improving the property’s curb appeal.
What you may not know about, however, is the property’s deteriorating roof, faulty foundation, or the damaged plumbing system. And these are just some of the many things that an independent and professional home inspector can help you discover.
A typical home inspection checklist involves checking the condition of elements like:
- Plumbing fixtures, faucets, and water heater
- Thermostats and heating, cooling, and ventilation (HVAC) system
- Electrical panel, light switches, and power outlets
- Exterior stucco or paint
- Rain gutters and downspouts
- Attic space
Getting a good inspection report is the only way to guarantee your passive income will continue to grow without fail.
Tip #5: Have systems in place to help you find the right type of tenants.
Finding the best investment property is only half the battle. To win the other half, you need to know how to find the right tenants. You want to find tenants that will pay on time, care for your rental property, cause fewer issues, and rent long-term. This is the goal of any landlord, needless to say.
Broadly speaking, properties in upmarket areas usually tend to attract reliable tenants that know their responsibilities. On the other hand, when it comes to low-income properties, tenants here usually tend to be just the opposite. They usually cause negligent property damage, failure to pay rent on time and rent short-term.
To grow your passive income stream with your rental property, you need the right tenants. And, how do you achieve that? By having a thorough yet fair tenant screening process. One that looks at each and every prospective tenant’s level of income, credit rating, and rental, criminal, and employment background.
Tip #6: Hire a professional to manage your rental property.
Owning and managing an investment property are two different things. Anyone can simply own a property but not anyone can be a property manager. Before deciding which is which, try asking yourself the following important questions:
- Will you be available 24/7 to manage the property?
- Do you know how to advertise a vacant rental property?
- Can you screen potential tenants?
- Can you handle 2 AM maintenance emergency calls?
- Do you know how to evict a tenant?
- Are you knowledgeable of the various federal, state, and local landlord-tenant laws?
If you answered ‘yes’ to most of these questions, then great. However, if not, then it may be in your best interest to just hire a professional to manage your investment for you.
And as with any profession, make sure to do your due diligence before hiring one. Check their client portfolio, experience and training, client retention ratio, tenant lease-renewal rate, and their average eviction rates.
There you have it. 6 tips that you can start using right away to grow your passive income with a rental property. If you have more questions, please consider hiring professional services.
This article has been contributed by Rebecca Fults.