What You Need to Know About Real Estate Investments: Renting

Jim Lowenstern, President of Castles Unlimited explains what you need to know about real estate investing.

With home ownership more tenuous now than in previous years, more and more Americans are living in rental properties, and investing in a rental property can be a lucrative venture. As with any real estate investment, a rental investment requires careful research, but the rewards can be numerous. There are a lot of considerations to take into account before taking the plunge.

If you don't have prior experience investing in a rental property, you'll need to start by asking yourself a few key questions, and the first questions deal with your financial situation. What kind of down payment can you make and how much can you afford as a monthly mortgage payment? How much will you need to earn in rental income in order to keep up those monthly payments? Do you have enough of a cushion to handle vacancies that result in periods of no income?

It's a good idea to get pre-approval for an investment property loan, and then secure the services of a real estate agent to help you find the type of property you're looking for. As always, location matters. You'll want to invest in an area where renters will want to live. Consider proximity to transportation, shopping, and schools, as well as the area crime rate – the same sorts of considerations you would make if you were buying a home for yourself.

Next, you need to decide what kind of property you're interested in. Are you in the market for a single- or multi-family dwelling? Condos? An apartment complex? A high-turnover (weekly) vacation rental? Once you decide on the type of property, you'll also want to think about whether you're prepared to invest money (and time!) in a fixer-upper that may need repairs or even renovations. If this isn't for you, you'll want to make sure you buy a property that is ready for renters to move into with few up-front fixes.

You'll also need to think about how much rent is reasonable to charge based on the area and the amenities the property offers. Are there laundry facilities on-site?  How many bedrooms? Is the property brand-new or could it use a few updates to make it competitive for a higher rent?

Now is the time to ask yourself whether you are able to manage the building yourself or hire a property manager who you will have to pay. Of course, if the property is far away, you'll need to secure the services of a property management service or individual who lives in the area and can monitor the property and make maintenance calls, arrange to have grass cut and snow removed, and stay on top of any repairs.

At this point, it's a good idea to calculate your monthly expenses and set rent accordingly. Don't forget to factor in maintenance costs, vacancies that may result in periods of time with no rental income to help you make your mortgage payments, and any unforeseen difficulties with tenants such as late or unpaid rent. How are you going to attract renters to the property and keep them in order to cut down on long-tern vacancies? Understanding the rental market in your area will be critical to determining your potential vacancy rate. And implementing a careful screening process is crucial to making sure you weed out any prospective tenants who aren't likely to honor the terms of the rental agreement.

Once you're mulled over all the considerations I've outlined, it's time to find the right property and make an offer. Your real estate agent can help you with this process. It's absolutely essential that you have a qualified inspection of the property to check for any hidden problems you may have missed, including plumbing, electrical, and structural issues that could come back to haunt not only you but your tenants.  It's always best to engage an agent that has rental properties that they currently own in the area that you are considering a purchase. At the very least they should be extremely knowledgeable about the rental market in the area.

If you haven't invested in a rental property before, it might be best to get your feet wet by starting small. If you're successful and start to make some income off that property, you can always broaden your investments to include larger properties.

One thing is certain: if you do your homework and learn the ins and outs of maintaining a rental property, renting can be a lucrative business.  Best of luck with your investments in rental income!

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.


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