Investing in Rental Properties for Beginners
Owning rental real estate is a dream that many investors share.
The thought of completely passive income - income that can, in
many cases, be quite lucrative - is something that anyone used to
the nine-to-five workday can enjoy. However, as with many
investment dreams, the reality is often an entirely new
challenge - one that produces just as many headaches as it aimed
to solve initially.
Despite this, with the right outlook and strategy, owning one
or several rental properties can be a lucrative opportunity. Many
landlords enjoy worthwhile earnings from their rental homes, all
in a way that's largely free of inconveniences. But while many
live the dream and benefit from it, a lot of landlords end up
failing due to poor investment decisions and erroneous property
This quick guide - entitled 'Investing in Rental Properties for
Beginners' - aims to solve those oh-so-common errors, and offer
assistance to would-be property owners in search of a solution. If
you are interested in owning real estate as a long-term
investment, or merely as a source of rental cash, continue reading
to learn some of the most common property mistakes, and how to
The most important part of owning a rental property is planning
accordingly for the expense of the property. Now, many people take
this rule to mean the initial expense of purchasing property. That
isn't quite it. Not only does property require an initial
purchase, it requires constant upkeep costs or maintenance
expenses; expenses that can often increase the older a
particularly property gets.
This is frequently underestimated by would-be property
investors and landlords, who fail to realize that a tenant may
lead to long-term issues with the property and recurring expenses.
Generally, it's a good idea to budget significantly more for each
rental property than just the cost of the home and its mortgage,
as recurring expenses and property maintenance can quickly add up
to quite high sums.
These can include major expenses such as heating and air
conditioning installations; roofing and gutter installations and
repairs, and serious foundational work to the home in the event of
a flood, earthquake, or other disaster. Likewise, simple
replacements of home fittings can quickly add up and become a
major expense, sharply cutting into the margins earned by renting
Generally speaking, the amount of money that's put into
maintenance on the home you're buying is linked to the term of the
investment. Long-term investments can and will benefit from a
budget for maintenance, while those for shorter periods may not.
If you're planning to hold the property for an undefined or short
period of time, consider how much maintenance could add to your
The second point of concern is then long-term value of the
home. While this applies to both homes and condominiums, it's
certainly of interest to homeowners. The boom-bust cycle of real
estate can both help or hinder your investment plans. A home
that's been rented for twenty years at a stable or consistent rate
may suddenly lose its value, making a short-term sale impossible
at a good price.
This risk is somewhat avoidable in long-term property
investments, in which the period of time that the property is
rented for can outweigh the potential gains or losses by selling
in an up or down time in the property market. However, it's worth
considering your exit strategy before investing in homes to rent,
as a poorly planned total strategy can end up pushing you to a
difficult financial position.
Thirdly, there's the long-term value of the home itself. Rental
properties in lower-income areas are a point of opportunity, as
many of the neighborhoods these properties reside in can become
gentrified over time. When investing in location-based property,
consider the amenities found in the area and its convenience to
other services, as these can impact an area's value over several
For example, inner-city residential areas, particularly those
that are relatively inexpensive today, are quickly growing into
vibrant, somewhat high-end neighborhoods. Classic examples include
Harlem in New York City, which, over the past two decades, which
saw property values increase 30 percent throughout the 1990s. This
can transform a rental property into a lucrative long-term
Finally, there's the issue of financing a rental property.
Purchasing property, particularly in major cities, can be an
expensive and difficult process. Would-be property buyers will
need a history of good credit in order to secure a good loan for
the property. This can often take a decade to build, and a variety
of payment related issues in the past can stand in the way of
getting a good loan.
For this reason, it's often worth approaching a home loan as a
process. Build your credit score in advance of the planned
property investment through vehicle financing and other relatively
small purchases. Many people that already own property have more
success in securing a good second loan for the new property due to
their history of mortgage repayments and successful financing.
Owning rental property can be a lucrative, worthwhile
investment if performed and planned for with the right amount of
care. Think twice before taking on any deal, and consider how it
will look in ten or twenty years time. When purchasing a rental
property for the first time, there's no such thing as too much
research. Plan ahead and be careful, and you could end up with a
lucrative rental home.