Insider’s Look at Becoming a Landlord: A Guide to Investing in Rental Properties

Investing in projects is the key to financial independence. There are so many options to pour your hard-earned capital into – such as start-ups, stocks, and more recently cryptocurrency. However, one of the better investment options is to become a landlord. 

Despite the real estate market constantly fluctuating, there are ways you can make it work. By investing in rental properties you are opening yourself to a steady supplementary income stream as well as numerous other benefits and longevity that other investment opportunities cannot always provide.

Benefits of investing in a rental property

In addition to having a supplementary income through the return on investment, property is a type of asset that can be beneficial to your extended family as you will be able to pass it down to your children after your passing. 

Additionally, rental property acts as a passive income and offers you a lot of flexibility to manage due to the fact that you invest in a property while still having a regular nine-to-five job.

What type of property are you looking to rent out

In between commercial and residential properties, each has its own benefits and pitfalls. However, residential properties offer a range of options on the type of building you want to lease out.

Vacation homes

These are homes that people rent out for days at a time to vacation in. These properties offer more flexibility as you can rent to multiple people in a year. There is also less wear and tear on infrastructure. However, you need to consider peak seasons versus off-peak seasons. There is no guarantee of back-to-back bookings at all times, and sometimes you need to be careful not to double-book renters during the holiday seasons. 

Multi-family homes and apartments

You may be lucky to get a whole multiplex dwelling to lease out to many families, or you can purchase individual units to rent out. The more units you have the more renters you can have – but sometimes obtaining suitable renters can become a trouble for you. It is important to note that individual units will be easier to finance rather than complexes. 

Single-family homes

These are stand-alone homes for singular families to live in. Buying a single-family home is more on the expensive side, and you may need to look at obtaining a mortgage to buy one.

Pros and Cons of Having Rental Properties

Rental property has a lot of pros and cons. This needs to be weighed in order to know whether you’re making the right decision.

The Pros: 

• You will be diversifying your investment portfolio which will help reduce risks of large losses and can lead to higher returns.

• You will be able to increase your income post-mortgage repayments. Once the mortgage has been taken care of, you can now enjoy the returns on investment or you can invest in more opportunities.

• You can work a regular job as well. Rental investment is a passive income, which means that there is a lot more flexibility and time to manage both ventures.  

• A rental property is a physical asset and can provide value over a long period of time.. 

The Cons:

• You will need to schedule maintenance checks on the properties on a regular basis.

• If your tenants have a problem with the building, you will have to attend to it.

• The income you make from rent may not always be enough to cover the mortgage repayments

• Because your investment is a physical asset, resale can be difficult.

Brush up on the laws

Owning a property comes with its own set of laws that need to be adhered to, however, homeowner laws and landlord laws are different. For the latter, you also have to be aware of the laws that protect your tenants. When you are making this venture you need to have a thorough knowledge of this when drawing up contracts. 

These laws cover topics like evictions and notices, rent increases, and discrimination against tenants. It is important to note that landlord laws can differ per state, but there are some laws that remain the same across the country. 

Financing the rental property

Even if you have capital on hand, depending on the property you want to purchase, it may require you to take out a secondary mortgage, engage in crowdfunding, or use other means of obtaining financing to make your purchases, this being said, repayments need to be factored in before you can consider a profit. 

You can look at options such as second mortgages on your existing home or you can acquire an investing partner or take out a personal loan. 

Selecting a property to lease out

After you have weighed all your options, you need to decide on the property you want to buy. Find a real estate agent who is proficient in rental properties to help you find the perfect option for you. Even with this additional help, you need to consider three main factors when looking at properties

The property’s location

Where you decide to buy the property can influence the tenants you attract, as they will be looking at similar factors as you. Let’s take New York as an example. When looking for a property in New York you need to ask if it is close to amenities like schools and hospitals, supermarkets, etc. After declining in a location, you need to look at the risk factors of the area.

Other factors that influence your decision

When you are looking for a property to buy and let out to rent – either a holiday property or a full-time home, you need to consider the person who will be staying in the property. 

If you are looking for a vacation property to lease out, weather plays an important role. For example, summer in Florida allows you to have an uptick in guests staying over the summer vacation – this could mean back-to-back clients lining up to hire out the place. One of the best ways to discern is by using a tool that can determine the climate risks of the area, so it will help you choose a property better. 

Building on the example of Flordia, if you are looking at the climate factors for an area like Sarasota in Florida there are far fewer concerns regarding tropical storms and environmental issues as opposed to Miami Dade, so you will find yourself leaning more toward buying a rental property in the former area. 

Conclusion for Investing in Rental Properties

Rental properties have numerous benefits, but when it comes to investing in one you need to think it through. There are different properties that you can purchase and you need to have a full understanding of the responsibilities that come with becoming a landlord before you start seeing a return on your investment.

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