If you look at many financially well-off people, they tend to have one thing in common—much of their money comes from investments not a pure exchange of pay for hours worked. There are countless vehicles for investing money, and one that can be particularly lucrative is purchasing rental properties. Like any investment, there is always an inherent risk and there are no guarantees. But, educating yourself on the process and learning from those who came before you, can minimize your risk and increase chances of success. Here are some important tips for the first time rental property investor.
Go into It with the Right Mindset
When it comes to making money, we tend to want to get as much as we can while expending the least amount of effort possible. We look at various investment opportunities and see them as a way to get rich quickly. But, anyone who has successful built wealth through real estate or any other means, certainly did not possess this mentality. If you want to be successful in this game, you must not look at purchasing rental properties as a way to get quick cash. Sure, you always hear those stories about people getting ‘’lucky.’’ But, they are few and far between and it is more likely than not that you will not be one of those ‘’lucky’’ people.
Working with a Real Estate Agent
While some people may view working with a real estate agent as cutting into their profits, they can provide valuable information that can ultimately make you more money, easily recouping any fee you paid for their services. With that being said, some would recommend the assistance of an agent for real estate investing after you have looked at a few properties on your own to avoid any pressure to purchase before you feel ready.
Property taxes vary greatly among areas, and it is an important part of your calculations. This is one expense you will always be contending with, and there is no room for negotiation or adjustments. These taxes will certainly impact your profit margin and you have to determine if a property is worth the investment. High property taxes are not necessarily a bad thing if the neighborhood is a great place for long-term tenants. But, do not make this assumption. Just because a place happens to be really nice, it does not necessarily mean that rental prospects are necessarily strong. You still must do your homework on that.
Self-Managed or Property Manager?
Whether you will manage the properties yourself or hire a property management company to do it for you is another important consideration. If you plan on doing it yourself, you may have more money to invest and you will have a higher profit margin. But, you will be trading your time. The cost of a property manager may mean investing less and less money in your pocket, but more time for you. If you plan on managing the property yourself, it is strongly advised you pick ones that are a reasonable distance from your home. If you use a management company, you will have more options as it will not matter as much that you are not close to the home.
Amount of Listings and Vacancies
If you see an area with a high number of listings, it can indicate one of two things. Either, the area is really not in high demand, or there is a seasonal cycle. If the former, obviously keep looking. If the latter, carefully consider whether you have the funds to get through periods where the unit will likely be vacant. Check up on vacancy rates as well. Lots of vacancies means you may have to lower prices to attract tenants while a lower number of vacant units may allow for a higher rent.
Kelli Cooper is a freelance writer who enjoys blogging about all things real estate; if you are looking for investment properties in the Richmond, VA area, she recommends visiting www.snipesproperties.com for more information.