If you want to generate residual income and build wealth, real estate investing is one of the optimal paths forward. More specifically, you should consider investing in rental property.
Rental property can be a lucrative investment, but it also comes with its fair share of risk. So before you start gobbling up properties to become the next real estate tycoon in your city, make sure you have a game plan.
Here are a few helpful tips:
- Location, Location, Location
While most real estate investors purchase rental properties for the monthly cash flow and not the property value or appreciation, you still need to take location into account. It will dictate how much you can charge.
This is one reason why it’s smart to buy rental properties in the community in which you live (as opposed to other states or countries). When you live in the city or town, you know which areas are on the rise and which ones are on the decline. This can help you make informed investment decisions that don’t just benefit you now, but also down the road.
- Meticulously Screen Tenants
Nothing makes or breaks a successful rental property investment quite like the quality of your tenants. Good tenants will pay on time and take care of your property. (They’re also more likely to be stable and stay for longer periods of time.) Bad tenants, on the other hand, will pay late and have total disregard for your property.
If you’re going to do one thing well, it should be screening tenants. Be meticulous in your due diligence and patiently wait for the right applicants. You obviously can’t be discriminatory in your selection, but there are plenty of objective factors related to income and job status that you can use to make wise decisions.
- Don’t Let Things Slide
While it’s important to build healthy relationships with your tenants, don’t do so at the expense of being a pushover. Letting something slide – like a late rent payment – even once can give the tenant the upperhand in the relationship. Do what you say and say what you mean!
- Hire a Property Management Service
If you’re busy working a full-time job and/or raising a family, you might not have the ability to deal with all of the time-consuming aspects of owning rental properties. Thankfully, you don’t have to do it on your own.
One of the best things you can do as a landlord is partner with a property manager. Property management companies offer tailored services to real estate investors that may include things like tenant screening, property marketing, rental collection, repairs and maintenance, and even eviction services. Consider hiring a local property management service in your area to do some of these tasks on your behalf.
- Put Everything in Writing
If you’re involved with real estate investing long enough, you’ll eventually encounter a situation where somebody tries to claim you did something that you didn’t. Or they’ll attempt to shift the blame or burden for some sort of negative outcome onto your shoulders. And in these situations, written proof is your best form of protection.
Any time you and a tenant agree to something, it should go in writing. (For airtight protection, get a signature. However, even a written email where there’s a clear agreement between both parties can be used as a form of legal protection.)
It’s also wise to keep a log of every point of contact and communication you have with a tenant. A simple spreadsheet works well. Include phone calls, face to face interactions, letters, and even social media interactions. (Depending on the statutes of limitations in your state, a tenant-landlord dispute could end up in court as much as five to six years later. Having these logs can protect you in a disagreement.)
Is Rental Property Investing Right for You?
If you’re looking to get started in the real estate investing world, rental properties are a great place to begin. But let’s be clear about one thing: it’s not for everyone. You’ll have to weigh the risks and rewards to determine if this fits your strengths, needs, and desires.
If you find that rental property investing is not a good fit, you can always try other real estate investment niches like raw land, REITs, wholesaling, or even house flipping. Take your time, be patient, and wait for the right fit!