How to Effectively Invest in Rental Properties

Anyone can get started in investing in rental real estate, but it does take some research and you’ll start off on a learning curve. Fortunately, many investors have made some common mistakes, so you can avoid those same pitfalls by learning from others. The following tips can help you sidestep the challenges other first-time investors have made.

Think Small

Your goal should be to spend as little on the sale price of a rental property as possible. The reason for this is that you’ll be buying a rental property that’s going to need some work, and you may not know everything that will go wrong with it. If you invest too much in the purchase and end up having to do excessive repairs, it will take you longer to recoup what you spend on the investment.

Screen Your Tenants Carefully

One bad tenant can create a multitude of problems that can end up costing you hundreds or thousands of dollars. One way around this is to invest more money into the property to make it appealing to upscale tenants. The other side of the coin is to rent to section 8 tenants who will take care of your property out of a fear of losing their eligibility in the program. Aside from these two options, it will be a lengthy process to evaluate prospective tenants and check references.

Research the Location

While you don’t want to overspend, you also don’t want property in underdeveloped or low-income areas. It will be more difficult to keep properties in these areas occupied, and an empty rental unit is costing you money. If this means paying a little more for a property in an up and coming neighborhood, the extra cost may be worthwhile. Before you buy any property, be sure to research the schools, crime rates, taxes, and other economic factors to determine the risk versus potential profit.

You should never invest blindly in any real estate project, especially when you intend to use that property for rental income. When you plan to hold onto a rental property for years into the future, it’s income potential over a long time period is an important consideration. Learning how to research the real estate market can help you select rental properties that will provide you with a reliable source of passive income.