Top 10 Tips For Investing In Rental Property
I studied real estate investing for over 15 years before buying my first house. I learned a lot, but not 15 years" worth of material. Finally, I purchase a house and it was disaster. I now have 13 rental houses, and I have purchased two more houses with the intent to sell them. I have learned a lot with these rental houses, and I wrote this article to pass my knowledge on to other.
These are tips for buying rental houses. If you intend to flip houses or have some other strategy these tips may not apply. However, I recommend that new investors start with rentals because the long term nature of rentals will spread your mistakes out over time making them less costly. In other words, if you invest correctly you will have high monthly cash flow, but if you make a mistake you will have low monthly cash flow "" but it is still positive cash flow. And some of these mistakes can be reduced with long term, low interest, financing.
1.Do It - I spent many years studying real estate investment before finally taking the plunge.
2.Margin of Safety "" Be sure you buy low enough so that you can handle unexpected results.
3.True Costs "" Make sure you factor in the true costs of the property. This is not only the purchase price and repairs but also should include closing costs, loan interest, utilities, and anything that you must pay for.
4.Cash Flow "" Make sure that your cash flow is positive. At a minimum, the rent should cover servicing the debt (principle plus interest), property taxes, and insurance. You should also be able to cover repairs and maintenance and vacancies.
5.Sweet Spot "" Start with houses that rent in a range that is popular with rentals. In my area, houses renting in the $600-$900 range rent fast. I can by three houses that rent for $700 each for a lot less than one house that rents $2,100.
6.Formulas "" Develop formulas and stick to them.
7.Just Fix it "" Fix things that are broken. Do not spend money on remodeling and upgrades for a rental. Remember, this is investing for profit, not an artistic endeavor "" save that for your own home.
8.Hire Professionals "" Don"t get bogged down doing rehab work yourself. This is time consuming and will lead to burn-out. Even if you enjoy this work, the schedule pressure will eventually catch up with you.
9.Don"t Rush "" Don"t do a bad deal just so you can get one done. Avoid analysis paralysis, but don"t rush in when the numbers don"t work.
10.Numbers, Numbers, Numbers "" Be objective. Do not get emotional about a property. Only the numbers matter; if a deal does not work another will come along.
Following these steps should reduce the chance of costly errors when investing in real estate. In addition to these tips, there are many other things I have learned as a real estate investor and I intend to share them all in upcoming articles and at my blog.
by: Don Chambers - Real Estate Investor