How to Buy a Profitable Rental Property and Get Passive Income
The Best Way to Understand this site is subscribe the RSS or Email Updates.
This article can be the part 2 for my previous article, The Reasons why Getting Started in Real Estate with Buying Rental Property which is talking about the reasons and also the benefits to get started your real estate journey with Rental Property. You can click on the link and read through the article first if you do not know what are the benefits of rental property. If you are ready, let us move on with this article: How to Buy a Profitable Rental Property and Get Passive Income.
Now I hope you have made your decision that you are going to involve in rental property and want to make some passive income for your pocket. Actually real estate is really a good way to invest your money where you can leverage on it for capital gain, tax deduction and also passive income. However, there are a lot of rental properties available in the market for you to choose from. Sometime you will easily get confused or we should call this Information overflow where you have too much to choose and too much of information have to be handled.
So in order to help you, I wrote this article which I will share some of the tips and guides that I learned which will help you to buy a rental property that make you money. In a nutshell, this is also a buying guide for rental property.
Without any further ado, here are the tips:
Understand Yourself Financially
- Get your finances in order. Before you invest any money, please make sure your finances are in order and under control. Here is the checklist for your finance:
- If you plan to taking out a mortgage, your credit report has to be good and does not contain any bad records. This will also help you have a higher chances to be approved and get a mortgage at a favorable interest rate. With a lower interest rate, your ROI (return of investment) can be increased too.
- Always double confirm whether you can afford the installment payment of your property if anything happen such as late rental payment from tenants or cannot rent out your property where you have to pay the entire installment yourself at that time.
- Make sure all your debt is under control. Maybe you can start a budget to make sure you can handle both your expenses, debt and mortgage payment.
- Always prepare an emergency fund that can afford your expenses for 3-6 months just in case anything happen in future.
I have 2 articles that might help you to make better decision here:
Things that you must consider before ordering a house
Budget to Financial Freedom – Prepare for the Known, the unknown and dreams
How to Choose Your Rental Property
- Choose a good location. In real estate, location is everything. People tend to care about the location when choosing their houses. Here are some of the example what people consider:
- Area with good Neighborhood and low criminal cases
- Surrounded with industrial or commerce zone which will provide job and business opportunities.
- Easy Reach of a good shopping center or local shops
- Good transportation infrastructure such as motorway, bus or train links
- Will pay attention on schools or university for those who are having children.
If you buy a property in a good location, you can easily rent your property out because the demands are there. One of the good examples is buying a rental property around universities or colleges. The market demands, tenants, are there and also the chances that you are going to rent your property out are really high. In some cases, you can also charge more on rental too.
- Look at the property. I heard from an experienced real estate investor that the ratio to find a good property is 1:100. That is mean he has to see 100 properties to find a good deal. As an investor, all you care is making money. So you must pay attention on the property itself to determine its investment value. In general, a good rental property should:
- Less than Twenty years old. This will reduce the chances you pay for the maintenance problems.
- Have good security system
- Have nice inner decoration
- Have fitted kitchen, private bathroom, etc
- Parking place
- If you rent out with furniture, make sure the furniture, curtains and carpets are in good condition and clean
- Clean and neat
DO Your Investment Homework
- Calculating the number. Investment is a math related activities where you must calculate the expense, income and cash flow from the investment. Before you buy a rental property, make sure you collect all the expenses associated with the property and deduct it from your rental income. Make sure the result is positive. There is always a good advice from real estate investors that “You are making money while you buy and not sellâ€. I believe on this.
- Do not overpay your investment property. In real estate, all you have to do is just have a little right over a rental property. Maybe you get a mortgage at minimum expenses, and then make money from the difference between your expenses and rental income. So do not overpay your property, use the extra money to get another property if you have. If not you will end up losing money or hardly make a dime from your investment.
- Find the right broker. If you are first time investor in real estate, maybe getting a broker is correct for you. A reputable real estate broker can make a lot of difference in your investment. They are experienced, familiar with the market and also have the contact list on their hands which may help you rent your property out easily. Of course, they may charge on their expertise but if your investment can afford it, I think this is quite ok to get someone to help you.
- Understand the real estate market. Well, this is the hard part of the homework where you must learn about your market. I can tell you that different area, district has difference on its market trend. So you must learn about this. In this matter, a broker may able to help you. But if no broker is helping you, then you must learn it by yourself and here are the tips:
- Low prices in the housing market can mean that the amount of rent is also low.
- Generally, high housing costs cam mean that you will be able to find more renters.
- Some people recommend that when buying rental property, look for those which have rent prices that below current market rents. Will allow you to raise the rent in future
- Make sure your targeted area is having a good rental history. You must check and see the average how long tenants are staying and their payment records.
- Understand your tenants. Whether they can afford a new house in the same area or are they prefer to rent rather than buy? By knowing this, you can understand that whether there are demands on your rental property.
Conclusion
I hope after reading this, you will have a clear picture on how to choose a rental property that will generate passive income to you and help you achieve financial freedom. Please feel free to comment on this article if you have any ideas, tips or experience to share with us.
Good Luck,
Harrison
Some Related Posts
Rentometer, another internet tools to check rental market of your property6 Ideas to know how much rent your should charge for your rental propertyThe Reasons Why Getting Started in Real Estate with buying Rental PropertyCan't Find What You are Looking for? Try Google Search
 |
   
|
Comments
3 Responses to “How to Buy a Profitable Rental Property and Get Passive Income”
Leave a Reply
“Make sure all your debt is under control. Maybe you can start a budget to make sure you can handle both your expenses, debt and mortgage payment.”
Here is the best way to do that — it’s called home equity acceleration:
More and more folks are using a Home Equity Line of Credit (HELOC) or a business-line-of-credit (BLOC) or personal-line-of-credit (PLOC) as an interest cancellation account to accelerate their home equity and payoff their home *years* sooner than listed on their mortgage amortization schedule.
Unfortunately, today’s Real Estate market means that folks can no longer count on appreciation to build home equity. Those who realize that they need to pay down their current mortgage debt are looking for alternate ways to aggressively (yet safely) build equity.
And they’ve discovered a perfect online system to do that; they can focus on their wealth accumulation goals while accelerating their equity simply by using an Advanced Line of Credit (ALOC) to ‘power’ the Money Merge Account™ financial solutions program.
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating a mortgage amortization front-end interest load. (On a million-plus dollar home, I’ve personally seen where the Money Merge Account™ program will save the homeowner $750,000 in interest charges!)
And the best thing – homeowners don’t have to refinance their existing mortgage or, in most cases, make any adjustments to their lifestyle.
It is unfortunate that most of us were never taught to follow three essential principles: (1) Avoid paying interest, whenever possible, (2) Use other people’s money, whenever possible and (3) Find and use a financial system that will guide you, especially if you have the tendency to go off-track. The Money Merge Account™ software and the program’s counselors use these principles to keep each homeowner focused on their wealth accumulation goals.
I’d be happy to provide further details…
Your priority is to find out what your loan terms are. Ask if your mortgage rate is fixed or adjustable. An adjustable loan rate often causes homeowners a sense of anxiety and urgency since they can end up paying more in only a few months due to a rate increase. A fixed rate is more secure for a homeowner. The rate never changes before you initiate a refinance. I hope this helps!
Great info. I may be reading this a year after you wrote it, but the info is just as good now.