How to Invest in Real Estate for Rental Income

Posted on 09. May, 2011 by in General

 Most of you are familiar with the different types of real estate investments.  There is no ‘one size fits all’ in real estate investing.  You need to find what floats your boat. Three of the most common strategies are investing for rental income, fix and flip and wholesaling. Of course, there are many more ways to invest in real estate, some more creative than other.

Todays blog is going to focus on investing for rental income ie. putting money in your pocket each and every month.  Investing for rental income is considered one of the more passive, even conservative of the strategies listed above. It is a long term strategy for wealth building.  An investment for rental income and owning a rental property is unlikely to provide huge gains or make you rich quickly like some of the other more creative ways to invest and often it takes several properties to create a retirement nest egg.  However, all areas of real estate investing comes with its own inherent risk, it’s up to you to mitigate that risk by conducting a thorough due diligence.

There are three things you should look for before deciding to invest.  Firstly, low interest rates is always a good start, followed by low prices (that’s where negotiating skills come in handy), and location (this can determine whether your property is easy to rent or not).

Here are 3 tips to check out before you go shopping for your rental property investment:

1.  Have a plan and know your market

If you don’t know what you are looking for, how are you going to get it?  Are you just hoping that this great investment property with massive positive cash flow is just going to jump right out at ya?  Nope, I’m sorry to tell you but it just doesn’t work this way.  You have to work and work hard at identifying what you want. Have you thought about the market area you are wanting to invest in?  You should be able to describe the type of home that fits your investment strategy right down from the condition, whether you require it occupied or vacant etc. If you don’t know what you want, how can anyone help you find the property? You should also have an idea of the monthly cash flow goal you are looking to achieve.

Buying for cash flow is always a good investment strategy.  I know some investors will disagree and buy if the numbers work, regardless of where the property is located.  We always buy within our location threshold – certain areas are prime for rental properties, often resulting in less vacancy and  longer term tenants.

2. Know your numbers

Long term profits on a real estate investment are made at the time of purchase.  That’s why it’s so important to buy low and sell high.  Even before you make a  purchase, you should be thinking about your exit strategy ie. how long are you going to hold the property, are you going to leverage the equity in the property to buy another? By making certain your mortgage payment is as low as it could be, keeping the operating expenses at a minimum, and pricing the rent amounts correctly, you will find that you will not only create a positive cash flow, you will be able to create the wealth you want for yourself.

3.  Partner with experience

First-time investors should find a real-estate agent experienced in investment property deals who can help you locate profitable properties.  A second option is to partner with a more experienced real-estate investor and close a deal together. An experienced real-estate investor may be willing to work with you in exchange for the capital you can provide, giving you the opportunity to glean investment knowledge and experience firsthand.  Even if you don’t like the idea of working with other real estate investors, it’s always a good idea to talk with them about pitfalls and challenges they’ve experienced.

 It really does take time, experience and a good eye for location and detail to achieve good results, – but they are achieveable results!

Have a great week!

Richard & Jane

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