3 Tips for Investing in Rental Property

22 April, 2019

One thing that the investment community has learned over the years is that buying and holding stocks turns out to be a losing proposition. The truth is that you must invest in a rental property keeping up with inflation. To do so, you should buy a rental property in a stable market to build your retirement funds through steady passive cash flow. Rental property is another name for investment as it is the simplest form of investment. Here are steps that you must follow for investing in rental property.

1) FIND A STABLE MARKET

A stable market is one of the most essential factors while searching for a rental property. Look for a market that has a proven history of price stability. Ask for the rent price, so that you have an idea of what rent to charge. A reasonable lease will enlarge your chances of keeping up with the inflation. Calculate the amount of cash you can expect by studying the projected income and by deducting your expenses that include your insurance, taxes, etc. You need to look at positive cash flow so that you get the most out of your rental property.

2) WORK WITH A QUALITY PROPERTY MANAGEMENT COMPANY

If your rental property is out of your state, then hire a quality property management company. As a good property management company preserves the value of the asset which provides you success in your investment. Your investment depends on the quality management team of your property management company. Here are a few things you should look into to hire a good company:

  1. Work with those who are in-house property management companies.
  2. Ask the right questions to your property manager. Ask them how many staffs have they managed before, how they screen applicants, what do they do when tenants don’t pay their rent on time. Remember, the whole point is for the pro to make your landlord duties easier, and part of that is by merely establishing clear communication and a comfortable rapport.
  3. Verify their knowledge of specific neighborhoods, you may also look at their qualification and certifications.

3) RUN CONSERVATIVE CASH FLOW ANALYSIS

The first and foremost goal of a rental property is to ensure positive cash flow. If you are planning to pay necessary expenses with the help of the cash you incur from your property, then structure it in the same manner. Getting more rent than you require means life is good but getting less than what you expect means that life is hard. Before you buy or rent your property check with your property manager an estimate of rent. Use an investment property analysis tool to get a clear picture of your rent structure. It is advisable always to assume at least 8% vacancy and never assume less than 40% expense ratio. Further, try to use a 10bii cash flow calculator to predict your ROI.

Here is how by following these three steps you can draw profits from your rental property purchases. Follow the guidelines above and consult a good property management company for further information.

 

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