On the surface, it seems likes like a surefire bet; in reality, it’s usually more headache than it’s worth. The challenges start early, and they almost always involve time and money. Let’s take a look at six of the big ones. Entire books have been written about finding a good rental propertynot to mention an Investopedia article or two. So much text has been dedicated to the topic because of its critical importance. Buy too expensive a place, and you’ll never make money. But trying to snag a bargain can be troublesome. Buying a fixer-upper requires that you have the skills, time, tools, and cash to make the necessary repairs and renovations. If you’re in no hurry, this may be a way to get a bargain on your investment ; if you already have a full-time job and a family, every minute spent repairing the rental is a minute not spent on a more profitable or enjoyable activity. However, nowadays, there are management companies that can do a lot of this legwork—from locating a property to rehabbing it—for you, for a fee, of course. Getting just about any piece of real estate into rental condition often requires, at a bare minimum, fresh carpet, and paint.
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Bargain properties are harder to come by, but mortgages are still cheap and rents are rising steadily. During the housing bust, when home prices fell nearly everywhere, you could easily buy a home at a low-enough price and charge a high-enough rent to generate a few hundred dollars a month in cash flow. Plus, the supply of single-family homes is slim in many cities. You can still find foreclosures, but their numbers have shrunk. That means you will probably have to look longer and harder to find the right rental property. Jeff and Donna Zibley of Apple Valley, Minnesota, a suburb of Minneapolis, looked at about 20 properties before they found the right one. They started with duplexes downtown but soon gravitated toward neighborhoods closer to home. Finally, they decided on a nearby townhouse that seemed like a comfortable fit.
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The year-old, two-bedroom, two-bath home had been meticulously maintained, plus it was located in a good school district and was close to public transportation. Start your search for a property by identifying an economically stable neighborhood where you can reasonably expect long-term price appreciation, recommends Robin Voreis, a real estate agent in Minneapolis who owns half a dozen residential investment properties with her husband, Aaron. Voreis, who advised the Zibleys, helps clients find homes to buy and rent out. She says that the bigger and more expensive the house, the harder it is to find tenants because at that level, people are more likely to buy their own home or want only a short-term rental. Single-family homes generally have the widest appeal. It can also be harder to get a mortgage on a condo. How much it costs to fix up a house is less important than what it will be worth afterward, says Voreis. Before the Zibleys closed on their townhouse, they got a home inspection, which turned up a few things the seller fixed free. That means you put down as little of your own money as you can, borrow the rest and let the tenants pay the mortgage, says Voreis. Being successful can mean different things to different investors. Other investors are content to break even every month and wait for the home to appreciate. Cheap money will help boost the bottom line.
Run the numbers
While you may be drawn to the hardwood floors and panoramic views, your landlord is more likely thinking about rent yields and cap rates. Landlords make money from rentals in two primary ways. First, they collect your rent. Second, your landlord banks on the rental property appreciating in long-term value. Averaging out the blips, house prices have gone up by 4. Landlords cash out the equity when they sell or refinance. They let other people — specifically the tenant — buy the property for them. As long as your landlord collects enough rent, the tenant will cover the interest and principal repayments. After 30 years or sooner, your landlord has a building that he owns outright, having contributed only 20 percent of his own money. Your landlord can deduct the mortgage interest, along with a number of operating expenses such as property taxes, insurance and maintenance costs from the rental income he receives. He may even depreciate the property to reduce his tax. Depreciation lets your landlord deduct a percentage of the rental unit’s purchase price from his taxable income, to account for the building wearing out and losing value over time. The IRS permits such deductions even if the property is not losing value in real life.
Find the right house
When we moved to Noblesville, Ind. Not true. As an owner-occupant, you can get an FHA mortgage, which requires a minimum down payment of just 3. Buying a home with two to four units and living in one of them offers advantages, says Voreis. One is the gross rent multiplier : the purchase price of a property divided by the annual rent. Cop suspended for troubling video of ex-NBA player. If rents are surging tremendously in your market, you could lose a lot more than you gain by keeping rents low.
Run the numbers
There are many ways to find good deals, but one oft-overlooked tactic is boosting returns to make an okay deal better. Glad you asked! Here are these eight creative ways to earn more money from your rentals; some work better for multifamily properties, others for single-family rentals, while some are expensive and others cheap and simple. Leasing furnished and semi-furnished properties let you charge more for rent. Renters will expect that other people will have used the furniture already, so you can buy used furniture. Furniture does not hold its value well, which is great news for anyone buying used furniture — you can buy beautiful pieces for a tenth of their original cost.
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But many people enjoy the challenge and fun of interior decorating, and when in doubt, just buy everything in black, or shades of brown. What about landscaping or lawnmowing services? All you need do is arrange a profit-sharing agreement with a local housekeeping, landscaping or pool service. Often these can be arranged with individual service providers, rather than full-blown local companies. Matt Nagy of parking creativity above has landpord good results omney lawnmowing and pool services. Which is more valuable than most landlords realize.
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