A Guide to Starting a Real Estate Investment: Investing in Rental Property for Beginners

A Guide to Starting a Real Estate Investment: Investing in Rental Property for Beginners

Real estate investment covers a broader spectrum of investment options than most people know. And the spectrum ranges from the passive investment strategy of buying real estate stocks on an exchange platform, pumping funds into Real Estate Investment Trusts (REITs), or getting involved in real estate deals via crowdfunding platforms, to the active approach of purchasing properties to either resell for profit or rent out for continual income.

Contrary to the old beliefs, investing in rental properties isn't a real estate investment strategy for earning passive income. Surprisingly, it's among the most active forms of real estate investment you can take up. 

The real estate investment world has produced many wealthy people today. So, if you're thinking of hiring an estate agent like those at Maidstone Estate Agent, and getting a rental property, there are several reasons to see it as a sound investment – because it's a brilliant way to put your money to work.

Meanwhile, it's advisable to have a significant level of understanding of what you wish to do before you go deep with any investment. You wouldn't want to lose thousands of dollars because you failed to do your research. 

Therefore,  This useful rental property guide will come in handy if you're a newbie to real estate investment. The article will discuss the essentials of investing in rental properties and how to go about the entire process as a beginner investing in rental property:

How to Determine a Good Rental Property

Beginners in property investment are mostly eager to get started and start making a profit. I'd be lying if I say it's that easy. you'd want to make your business the type your customers will be one of your primary marketing techniques. And you'll get that when you deliver impeccable service. 

You'd want your rental property to meet the needs and exceed the expectations of your customers. To do so, you'll want to consider many criteria when looking for a rental property. Know exactly the type of rental you want to dive into, whether it's a residential rental property or a vacation rental property

The type of rental you want to invest in will determine the location options for your to-be rental home. If residential, you may want to look at homes in neighborhoods with decent schools, functional social amenities, and low crime rates. 

When you find a nice neighborhood that meets the above requirements, you can proceed to inspect properties. You'll not regret taking your time when inspecting properties. Your goal as a beginner in rental property investment is likely to start making your money as soon as the business starts – but that's not always the case.

At all costs, avoid a fixer-upper. You'll want to save yourself extra spending by buying a property you won't have to repair before use. It's advisable to see a real estate agent and get professional advice on how to buy a rental property. 

Are You Capable of Being a Landlord?

This question may sound funny to you, but it indirectly means do you have the skills that will help you reduce your expenses? Do you have the extra time to manage your investment? Are you aware of the costs that come with a house? You'll want to provide honest answers to these questions as they'll guide you to make a wise decision. 

If you're good with your toolbox, you know how to make minor repairs here and there, you're also good at maintenance and property management, you may not know, but you'll be saving yourself lots of stress.

Property owners who have one or more homes often do their repairs to cut down expenses. Imagine how these minor repairs would eat into the profit of someone without repair skills. Now you see why you should ask yourself if you're cut out to be a landlord. 

Find the Right Location

If you didn't know, the most crucial factor to consider when buying a rental home is the location. Buying a rental property in a declining area is the last thing you want. An ideal rental property must be in a place with traffic. 

The rental property investment strategy doesn't necessarily include buying a property in an established zone. You might not have the financial capacity to do such. But you'd want to look out for areas with steady population growth and intending revitalization. Such sites depict potential investment locations. 

Also, it's advisable to seek locations with low property taxes and plenty of amenities such as restaurants, parks, movie theaters, and malls. A property with these features is a plus for you and a win for your customers as most people look at the amenities around a rental property before making payment. 

Should You Buy Outrightly or Finance?

Your investment goals will determine whether you'll pay for the rental property with cash or you'll take out a loan to finance your investment. An investor that pays cash on a $200,000 property could see a $15,000 annual return with taxes, rental income, and income tax.

Meanwhile, an investor that finances his rental property could see greater returns over the cash buyer after depositing 20 percent on the property, with a four percent compound interest rate, the earnings amount to about $8,200 after deducting operational costs and additional interests. 

Yes, the cash flow is lower for the financing option. But a 27.9 percent annual return on the initial $40,000 down payment is much higher than the profit earned by the cash buyer. So, you'll want to weigh your options before deciding how you'll make payment.

Factor Unexpected Costs

If you're a beginner investing in rental property, you'll want to know that not only upkeep expenses and maintenance costs will eat into your monthly earnings. There's always a chance that unexpected expense-requiring events will occur – and you'll want to fix it immediately before it escalates. 

For instance, if you purchase a rental property on the beach and a strong wind damages part of the roof, you'll have no choice but to repair it. It can be frustrating, but if you already know beforehand that anything can happen anytime, you'll be less worried because you're prepared. 

Conclusion

As with any investment, you wouldn't want to rush into investing in a rental property without basic knowledge of the real estate industry. It can be financially catastrophic. As much as it can make you, it can also mar you.

But with patience and wise-decision making strategies, beginners investing in rental property will not only gain profit but have the opportunity to understand an aspect of the real estate investment world. 

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