Learn the best way to begin investing in properties
Investing in rental properties is an exciting step for any investor. There are also a lot of things to consider and be aware of before making the big purchase.
Property investing is a popular option for individuals who are looking to make a steady passive income. There are currently around 48.2 million rental units in the United States and individual investors own almost 19.9 million (41.2%) of those units. [1]
Continue reading to learn our tips on how to start investing in rental properties.
Arrange your financing
Before you start investing, it’s important to assess your finances. You should be in good financial standing with a minimal amount of debt. Depending on the state of your finances and your lifestyle, you’ll also want to develop an investment strategy. There are three common strategies to consider:
- Growth: The main goal of this strategy is to grow your net worth. This usually means you will fix and flip your rental properties and pay 100% cash for each property.
- Saver: The saver strategy’s goal is to use the income from your rental property investments as savings. This usually involves living in one of your investment properties while you fix it to sell or rent to someone else.
- Income: The goal with this strategy is to gain a steady, passive income from your investment rental properties.
Next, you will need to save for a down payment on your rental property. Investment properties often require a larger down payment than owner-occupied homes. For example, many mortgage programs require a less than 5% down payment for homeowners, but investment properties may require a 20% down payment.
Based on your planning and investment strategy, you will need to determine whether you will buy or finance your rental property. There are benefits to both of these approaches and ultimately depends on your investment goals. Paying in full with cash will allow for a positive monthly cash flow.
If you decide to finance your investment property, you will want to ensure that you secure the lowest rates possible and choose a loan that is flexible enough for your priorities. It’s also important to note that interest rates for investment rental properties may be higher than a mortgage rate because lenders believe it’s more likely for you to pay off debt on your home.
Another cost to consider are the tax implications that come with owning a rental property. The location of your investment property will determine your property tax rate. The average property tax rate in Florida is .98%, while Orange County, FL’s average property tax is 1.01% and Seminole County, FL’s is .76%. [2] A high property tax can add to your costs significantly, so it’s important to factor that into your estimated costs.
Learn more:
What to look for when buying an investment property
Calculate your estimated return
Many property investors agree that your income from your rental property should abide by the 1% rule. The 1% rule means you should set your property’s monthly rent to a rate that is no less than 1% of the price you paid for it, including any renovations and repairs.
For example, if you buy your investment property for $200,000 and spend $50,000 on renovations, your total investment is $250,000, meaning you will want to charge each of your tenants at least $2,500 each month.
Choose a market
The location of your rental properties is one of the most significant factors to consider before making the purchase. You don’t want to be stuck with a rental property in a stagnant or declining area. The top three most important factors to consider are jobs, economics, and growth.
Some other factors that you should look for, depending on the demographic you are looking to appeal to are walkability, schools, public transportation, and local laws.
Knowing your demographic is not only important to choosing the location, but choosing the property as well. For example, if you’re looking to appeal to families, you’ll want to purchase a property with multiple bedrooms and bathrooms that is close to highly-rated schools. However, if you want your property to appeal to young professionals, you’ll want a property with more single bedrooms that is close to a business district and entertainment options.
Read more:
Our guide to buying an Orlando investment property
Hire a property management company
Knowing how to start investing in rental properties is a great first step. Once you have secured your investment property, you’ll come to realize owning and managing an investment rental property by yourself comes with a lot of tasks and can be very overwhelming, especially for a first-time property investor.
Our comprehensive property management services include:
- Marketing and showing your property: We showcase your property in the best possible light and highlight the key selling points of your property
- Tenant screening: Our comprehensive tenant screening includes credit checks, nationwide criminal background check, nationwide eviction history check, employment/income verification, rental history verification, and more.
- Leasing: We handle all of the leasing requirements before they move in.
- Tenant evictions: Our team works quickly to manage the eviction on your behalf, as well as reporting and rectifying any damage or issues that may arise during the process.
- Rent collection and remittance: Keep your investment on track with timely rent payments sent to you within a few days of collection.
- Property inspections, maintenance and repair: Rest assured that your property is always in the best possible condition with our quick, comprehensive maintenance and repair services.
- Monthly financial statements: You’ll receive a statement each month detailing how your investment is performing and the work we’ve done on your behalf to keep your property maintained.
- Expert advice on how to maximize your return on investment: With years of local real estate experience, we’ll offer you regular actionable advice on how you can maximize your return on investment.
Looking for an Orlando property management company for your rental property?
At Rental Heroes, we are also property investors! We understand what’s most important—a well-managed property that generates a steady, reliable source of income. Our local knowledge helps us to proudly manage hundreds of units across Central Florida, and we’re committed to doing everything to keep your tenants happy by handling maintenance requests quickly and responding to potential tenant issues.
Ready to choose the right partner in property management?
Contact us today!
Sources:
1: Pew Research Center | As national eviction ban expires, a look at who rents and who owns in the U.S.