Residential Real Estate Investment: The Formula for Success

There are many types of real estate that you can invest in. However, a residential real estate investment is one of the best investments you can make. This is because this type of rental property can offer a steady stream of positive cash flow, generate a good return on investment, and help you build wealth. Most successful real estate investors usually have some form of residential real investment in their portfolio.

However, making money in residential real estate is not easy. There are some critical things that you need to take into consideration if you want to be successful. If you are a beginner, you need to learn how to invest in residential real estate to avoid losing money. Here is the formula for success in residential real estate investment that you should follow.

1. Find the Right Residential Real Estate Strategy  

Before you begin your residential real estate journey, you need to know what you want exactly. A great starting point is deciding on the strategy to pursue. What is the right residential real estate investment strategy for you?

For instance, there is a number of residential real estate properties to choose from. You can invest in single-family homes, multi-family homes, townhomes, condos, etc. Compare the strategies and choose one that is in line with your financial goals. Single-family homes are usually more affordable, have higher demand, and appreciate more. On the other hand, multi-family residential real estate usually has more rental income but is more expensive to acquire and manage.

For instance, if you want to acquire a residential property investment with the aim of renting it out on Airbnb, it would be better to purchase a townhome instead of a single-family home or an apartment building. If you want to expand your investment portfolio, you should diversify your types of property. On the other hand, if you want to make a quick profit, look for residential properties that are in poor condition and then fix-and-flip them.

2. Work Out Your Finances

You should figure out how you are going to finance your residential real estate investment even before you begin your search. You should know what you can afford to pay for. Consider all the acquisition as well as ongoing costs that accompany the purchase of your residential property investment. The costs may include legal fees, building inspection fees, mortgage establishment costs, stamp duty, repair and maintenance, and property management. After knowing all the costs, draw up a budget.

There are several residential real estate investment loans you can use to finance your residential real estate investment. Do your due diligence to find the best financing method and mortgage lenders. You can network and ask for referrals from family, friends, and colleagues who have a residential real estate investment. Don’t settle for the first mortgage lender you find. Instead, assess multiple lenders to find one with the best rates and favorable requirements. Also, ensure that you have enough cash for the down payment of your residential real estate investment.

Related: How to Get Your Finances in Order Before Buying an Investment Property

3. Select the Right Location

The location will influence the success of your residential real estate investment. You may have the best investment property but if it is in a bad location, the chances of succeeding are slim. Location of your property is constant. While you can make changes to your residential property, it is impossible to change the location to a more suitable one. The location will determine the amount of rental income that your residential real estate investment will earn. This will greatly influence your cash flow and return on investment. Furthermore, the location of your residential real estate investment will determine factors such as the population and economic growth. These factors will influence the appreciation rate of your property.

The best locations to pick for your residential real estate investment are those with a high development rate, a growing job market, and one that is near essential amenities like infrastructure, schools, shops, and recreational facilities. You can use residential real estate investment software to help you determine a profitable location. Consider using Mashvisor’s heatmap analysis tool to find the best neighborhood for your criteria.

Related: 6 Reasons Why Income Property Location Is So Important in Real Estate Investing

4. Find the Right Residential Real Estate Property

After picking an investment strategy, getting your finances in order, and selecting a good location, you can now begin searching for a good investment property. Never settle on the first property listing you come across. You need to consider multiple properties and conduct thorough real estate investment analysis. Conducting a thorough analysis before acquiring a residential real estate investment will save you a headache down the road.

You can use a real estate investment calculator to find profitable residential properties relative to the market. With a real estate investment calculator, you do not need manual real estate investment analysis. Mashvisor’s investment property calculator will help you find the key return on investment metrics of an investment such as cash flow, cash on cash return, and cap rate.

Related: Real Estate Investment Calculator: What It Is and How It Works

5. Work with a Real Estate Agent

It is advisable to work with an experienced real estate agent if you want to have a successful residential real estate investment. Unless you are a full-time property investor, you probably don’t have enough real estate knowledge and experience. Good agents have devoted a lot of their time in studying the real estate market and analyzing many investment properties for sale. That’s why you need to work with an experienced and knowledgeable real estate agent.

6. Manage the Rental Property

Acquiring a good residential property and finding suitable tenants is not the end. You will still need to ensure that the rental property remains in good condition for as long as possible. Therefore, monitoring and maintaining your residential investment is important. You will also be obliged to ensure that your tenants are not only comfortable but also pay rent on time.

Ignoring the poor condition of the rental property can lead to more expensive repairs later. On the other hand, ignoring non-payment or late payment of rent could lead to bad debt. You can choose to hire professional property management to do the work for you. They will locate suitable tenants, screen them, prepare leasing documents, conduct regular inspections, and arrange for any required repairs.

The Bottom Line

Residential real estate investment is usually associated with higher returns, making it one of the favorite types of real estate for investors. However, there is a lot you need to do to be successful in the business. This formula will increase your chances of succeeding in your real estate investment:

Best Strategy + Proper Financing + Good Location + Profitable Property + Good Agent + Diligent Property Manager= Success

With the right investment tools, sufficient knowledge, and experience, you can make your investments successful.

It is essential that you do your homework well and use real estate analytics to find residential properties with positive cash flow. Head over to Mashvisor for more real estate investment tips and get access to tools that will help you make wise investment decisions.

To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.