Buying your first rental property might seem like a difficult undertaking upon first glance. After all, real estate investing involves several concepts that range from market analysis to cash flow projections and this can seem overwhelming to beginner real estate investors. However, this is not the case at all. In fact, investing in rental properties is one of the safest and most accessible ways to build wealth. So how to get started with rental property investing? And how to make money investing in rental properties as a beginner real estate investor? This article will walk you through the main aspects of rental investing and show you how to start investing in rental property in 2020.
How Can New Real Estate Investors Make Money?
Making money in real estate can be done in several ways. The two main ones being appreciation and rental income. Here is a brief overview of the two approaches.
1- Investing for rental income
This rental property investment strategy relies on the cash flow that the home generates. For this rental investing approach to be effective, the income needs to be higher than the expenditure. The advantage of investing for positive cash flow lies in the fact that the real estate investor will start seeing returns within a few months of closing the deal.
2- Investing for real estate appreciation
This is a long term strategy that relies on the gradual increase in property value. As long as you invest in a rental property that is located in a high growth housing market, you can generate a sizable return at the end of the investment cycle.
Let’s now delve into some real estate investing tips for beginners.
Investing in Rental Property for Beginners: Our Top 11 Tips for 2020
The key to real estate investing for beginners is developing a baseline grasp of the essential aspects of property investment. This includes everything from market research and what to look for in rental property to financing, investment property analysis, and rental strategy execution. The tips below should give you an idea of what you need to know to get started in real estate investing.
1- Focus on single-family homes
Novice rental property investors should start with the simplest type of investment properties: single-family homes. These homes are easier to manage and dealing with one single tenant is highly preferable when you are just starting out. Moreover, the expenditure that comes with single-family homes is substantially lower than multi-family homes.
2- Get your rental property financing in order
Getting financing is an integral step in buying rental property. When it comes to rental investing as a beginner, it is essential to have your financing lined up before making an offer. Make sure to explore all your options and shop around for the lowest mortgage interest rates.
Related: 4 Investment Property Financing Methods
3- Prepare a rental investing marketing strategy
Unless you are planning on buying an occupied rental property, you will need to come up with a marketing strategy in order to attract tenants. In fact, the last thing you need to deal with in rental investing is a high vacancy rate. This can severely affect your bottom line and delay your ability to generate a positive cash flow. Before becoming a landlord, craft a marketing plan that outlines how and where you will advertise your property.
Related: 4 Tips to Improve Your Airbnb Marketing Strategy
4- Use real estate investment tools
Thanks to the advent of AI and machine learning algorithms, there is a plethora of real estate investment tools that are available to investors. A great example of this is the rental property finder. Thanks to this tool, finding rental properties for sale can be done in a matter of minutes. Additionally, the property finder gives you access to each listing’s rental property calculator and provides you with a general outlook on the property’s return on investment.
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5- Check local rent control laws
It’s important to be familiar with rent control laws before buying a rental property. Checking these guidelines will give you an idea of how rent increases are handled as well as the legal amount of rent to register.
6- Retain the services of a professional property manager
Even if you invest in a single-family home, managing rental properties can pose several challenges to beginner real estate investors. The process is very time consuming and you are likely to make several costly mistakes throughout it. Working with a property management company will allow you to focus on other tasks and save you the hassle of dealing with tenant-related issues.
7- Explore no down payment options
Buying an investment property with no money is entirely doable. In fact, there are several methods that allow you to invest in a rental property with no down payment. For example, you can leverage the equity in your primary residence to obtain a home equity line of credit (HELOC) or a home equity loan. Other options include seller financing and hard money loans.
Related: How to Buy a Home with No Money Down: 6 Different Ways
8- Consider investing in vacation rental property
Investing in vacation rental property is an evergreen strategy that will always yield good results when used properly. As a matter of fact, the rental income that these investment rental properties generate is higher than you would get from traditional rentals in most housing markets. Make sure to narrow your search down to locations with lax short term rental laws and a booming tourism sector.
9- Pick a location with decent amenities
Amenities should always be taken into consideration when crafting a rental investing business plan. Generally speaking, locations that boast all the essential amenities will attract a constant stream of potential tenants. Focus on areas that have good public transit as well as several schools and universities.
10- Extend your rental investing to out of state rental properties
One of the perks of becoming a rental property investor is the possibility of investing in different housing markets across the country. As a matter of fact, investing in out of state rental property is an option you should seriously consider. Profitable real estate deals can be found everywhere and there is no reason to limit yourself to your local housing market.
11- Pay attention to economic indicators
The strength of the local economy is one of the most critical factors in rental real estate investing. Not only should the property you invest in be located in an area with a strong economy, but the future outlook of the real estate market should also be bright. Keep an eye on the indicators that forecast economic cycles, namely projected employment growth and demographic data.
Get Started with Rental Investing
Due to its simplicity and high earning potential, rental investing remains the ideal real estate investment strategy for beginners. Moreover, this is the perfect time to get started as the rental market has never been stronger. Start your investment property search now.
For more tips on how to invest in real estate, check out our real estate blog.