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How Investing In Rental Property Works For Beginners

Investing In Rental Property For Beginners

Investing in rental property means buying a property that can generate an income in the form of rent. There is no doubt that investing in rental property for beginners can be a great way to generate positive cash flow every month. However, many people still find it challenging due to expenses typically associated with traditional real estate investments including property management and renovation works. It is a well know fact get started in real estate investing can be very tricky and overwhelming. In recent years, the solution to this problem has emerged under the so-called turnkey rental properties. Why did investing in turnkey rental property become so popular? The answer is because, on top of all of the advantages it entails, investing in rental properties offers an ideal solution to investors biggest problem: Headache. Turnkey rental properties allow investors to sit and enjoy their passive cash flows while someone else does all the hard property management work for them.

Rental Property Investing Overview

A rental property, also called ‘turnkey’, is a real estate property that is fully rehabilitated, functional and ready to use. It is usually managed by a third-party properly management company whose aim is to make the real estate investing process as simple as possible to you as an investor so that all you have to do is to “turn the key”. This type of property is highly appreciated by new real estate investors who have little experience in rehabilitation, or even seasoned investors who simply prefer to have someone else do the analysis and renovation for them.

 

Rental Property Investing

Is Rental Property A Good Investment

Should you invest in rental property? Real Estate is a proven wealth building vehicle. The most common form of real estate investing, the “buy and hold strategy” involves purchasing a property and renting it out for an extended period of time. Essentially, a “buy and hold investor” seeks to create wealth by renting the property out and either collecting monthly cash flow or simply holding the property until it can be sold for a gain in the future. Among the advantages of this strategy is that during the time that you hold the property and rent it out, the mortgage is paid down each and every month, decreasing your principal balance and increasing your equity in the rental property. Investing in rental properties can generate passive income, significant tax benefits (being an income property) and build equity from price appreciation over the years. Real estate is the only investment vehicle that you can live in or rent to produce income. You can also derive large tax free profits when you sell your investment property at a higher price that you paid for it. But, before investing in rental property you must consider your investment priorities and temperament. How much time do you have to devote to rental property investing? Can you solve the problems on your own?

Can You Finance Your Rental Property Investment

You need to assess your current financial position to get a realistic sense of your budget and timeline for making your first rental property investment. Make sure you’re financially fit before investing in rental properties. Most successful real estate investors build their investment portfolio through saving money and then gradually buying properties over the years. Going for mortgage can help you to quickly build your portfolio of rental properties. Instead of putting all your savings into one rental property, you can contact lenders and borrow from them and buy multiple rental properties. Typically investors need to put 20% of their money as a down payment and rest of the amount is covered by the loan amount. The best returns on real estate rely upon the use of credit to obtain the leverage of using other people’s money. Pay attention to your monthly budget and make sure you have adequate insurance coverage as well.

Rental Property Financing

 

Rental Property Income

You need to know how to estimate a rental income and learn about the other ways you can use to monetize a rental property.

Rental Property Income

Expense of Rental Property Investing

Make sure you understand all of the expenses associated with rental property investing. There is a lot more than just a mortgage to think about.

Appreciation of Rental Property

It is important to understand the two different types of appreciation  and how they can impact what type of property you want to buy and where to buy in. Appreciation in the rent and property value.

Rental Property Appreciation

Rental Properties For Sale – Finding Off-Market Deals

You need to find the sites like “Norada Real Estate Investments” to look for rental properties for sale. They have exclusive off-market rental property deals in multiple markets of the Unites States. Sites like Trulia and Zillow are good but there are some intricacies you need to know when searching on them. You need to find diverse list of suburbs across the city and in different price brackets which have good transport, schools, lifestyle, high sales volume and high percentage value growth.

Rental Property Analysis

Once you have found a bunch of rental properties that you are  interested in, it’s time for analysis. You need to crunch the numbers and figure out if it’s a good investment. As an investor you need to understand how to evaluate deals and opportunities. By far the most common mistake that we see new investors make with this strategy is buying bad deals because they simply don’t understand property evaluation. Other common problems include underestimating expenses, making bad decisions on tenant selection, and failing to manage properly. You need learn how to figure out income, expenses, cash flow and whether it’s a good deal for you. You need to see what is tenancy type of the market. Is it a periodic tenancy or a fixed term of 6-12 months. A fixed term rental property has a rent assessment at the end of every fixed term where rent typically goes up a percentage.

Real Estate Education For Investors

Real estate investing is not a “get rich quick” scheme. When it comes to your real estate education, a solid foundation is key to a long-lasting business. As you analyze your deals, make sure to learn the trade and perfect it. You need to tune in to sources of real estate education, so that you can continue building your knowledge base and avoid critical mistakes. Books are fundamental in gaining an education in real estate and perhaps the most widespread learning method for investors. Real estate books are produced each year by the thousands, and every major bookstore in the world contains a whole section on real estate investing. With the advent of internet, you can buy e-books on real estate education at cheaper rates than paper books. You can subscribe to real estate blogs, which can be an amazing source of free information. Real estate podcasts are one of the newest innovations in the world of real estate investor education.

Networking in Real Estate and Having Mentors

You cannot fly solo. Building a large network is a vital part of being a real estate investor. You need to build a network in real estate market that will help you to success. Finding a mentor and learning from those who have come before you is one of the most important steps you can take in your real estate investing education. Concentrate first on establishing a relationship with seasoned investors who you would like to learn from. A mentor doesn’t need to be real estate mandate Donald Trump or Robert Kiyosaki. A mentor can be the investor down the street who owns a half-dozen rentals and works a full time job. You can join portals like BiggerPockets and learn from real investors who have build wealth specifically through rental property investment.

Rental Properties Generate Passive Income

Investing in turnkey rental properties is a highly appealing approach to many investors who prefer “hands-off” property management of their properties, while still enjoying the return on their investment. In this case, the third party property management company is responsible entirely for the management of your property which in fact you don’t even have to see. All what you need to see is your ROI flowing into your bank account each month. For example, if maintenance is needed, it will be the property management company who will receive the call, not you. They will also be collecting rent from the tenants and addressing their complaints.

Buying ‘Rental Properties’ From ‘Turnkey’ Providers

Investing in rental properties has many advantages which may not be considered by first-time investors. The things mentioned above are not a cup of tea for every investor. Although, it is important to learn all things, but if you can’t due to any reason, you can choose so called Turnkey Rental Property Companies to help you out. The easiest way to get started in rental property investing is buying rental properties from reputed Turnkey providers.

Rental Property Buying Is A Simple Process 

The first and foremost advantage of buying a rental property is that you get to simplify the process. Most of the investors interested in real estate are looking to generate a second income, not a second job. Doing it all by yourself takes a lot of your time, which otherwise can be saved by choosing a Turnkey rental property company who will do the heavy lifting for you.

Rental Property Generates Streamlined Cash Flow

Unless you have been investing in real estate for a really long time, the odds are that turnkey operators have better rental property management experience than you do. They know how to deal with tenants and contractors, and they have their own property management strategy that ensures routine rent collection and handling of any payment problems.

Rental Properties Can Be Bought In Diversified Markets

Rental Properties are very much appreciated by investors in growth markets and not in markets. You can easily buy an out of state rental property without having to live in that state or handle the management. This process also helps you as an investor to diversify your portfolio of rental properties. For example, if you live in New York City and cannot afford buying a rental property, you can diversify your portfolio and still generate passive cash flows by buying rental properties in more affordable distant growth markets like Atlanta, Dallas, Memphis or Indianapolis.

Rental Property Market Insight

If you decide to buy a rental property on your own, you will have to do plenty of market research to decide on the best area to invest in. However, a good turnkey rental property company will know the sweet spots of the market by heart. They already know which markets are sustainable and good to invest in. This experience takes plenty of time to build, and having it will save you a lot of money as well as energy. These companies want to be in this business for a long term, so they make sure to sell the best rental properties to their clients. However, it is wise to hire your own turnkey property consultant to cross check their proposed ROI. You need to invest in markets where development is heading. The best rental properties are the ones that are well located and physically sound.

Specialized Turnkey Rental Property Companies

These companies can purchase properties such as REOs in bulk every month. They have good relationships with banks, close deals quickly with cash and usually get better pricing than an individual investor. They also have their own team for renovation work which will typically cost you less than hiring contractors by your own since they can buy materials for bulk.

Turnkey Rental Property Company Has Professionals In Place

To make sure your rental property is purchased and managed in the right way, you may have to have professionals such as contractors, brokers, loan officers, tax advisors, attorneys, appraisers, title/escrow agents and accountants, which you may not be able to do on your own. Instead of it, turnkey providers already on-going relationships with all these professionals which saves your time and ensures your property is managed in the best way. They also have their own contractors to do the repair work. They can help you in financing as well.

5 Best Markets To Buy Rental Properties in 2018

In their outlook for 2018 Emerging Trends in Real Estate, PWC, shares the top-ranked markets in the U.S. for turnkey rental properties, based on extensive surveys, interviews and individual market focus groups. Here are some of the best U.S. markets to consider for rental property investing this year.

Rental Property Investing Overview | Seattle

Seattle received the strongest outlook as the best real estate market for the upcoming year. It has local economic outlook, strong demand from investors and plenty of capital for real estate investment. According to PWC, the population growth in Seattle is double the national rate and the city is expected to receive around 29,000 new residents each year for at least the upcoming five years. Moreover, the cost of doing business in Seattle is 103%, with 5-year disposable income growth projected to be good and home prices increasing at 123% of previous peak.

Rental Property Investing Overview | Austin

Austin is the second ranked, with positive outlook for all property sectors in general, specifically for multifamily and single family housing. The local economy is strong with no shortage in available investment capital. The population is projected to grow at 2.8% in 2018, and the city expects to add at least 42,000 residents a year for the next five years. The cost of doing business is 104% with positive 5-year disposable income growth projection. Moreover, the home prices are at 156% of previous peak.

Rental Property Investing Overview | Salt Lake City

The city is witnessing a strong local economy, but according to PWC, the real estate investor demand may be directed to larger markets and investment capital may be harder to obtain. 30% of the population is aged between 15 and 34. The cost of doing business is 88% of national average, and the 5-year disposable income has a projected growth of 1.7x of national average.

Rental Property Investing Overview | Raleigh/Durham

With positive market outlook for office and single family, the local economy and capital availability are also projected to be positive. With 61,000 annual net migration, ages 15-34 are projected to go up to 15.4% for the next 5 years. The cost of doing business is 88% of national average, with a projected disposable income growth of 1.4x national income.

Rental Property Investing Overview | Dallas

The city has great outlook for the local property regarding industrial and single family properties. The local economy and investor demand are also positive with good capital availability. The city is expected to have 87,000 new residents a year for the next 5 years, and ex projected to have population aged 15-34 grow by 10.9%. The cost of doing business is 94% of national average and the disposable income growth is 6.9%. the city also has strong healthcare and livability ranking.

Investing In Rental Property For Beginners – Bottom Line

One of the most commonly stated reasons that people give for investing in real estate is that they are seeking out financial freedom. Investing in rental property is an alternate path for seeking that financial freedom.  While active investors enjoy spending time on research and management, passive investors tend to have less time or simply do not prefer to be engaged in this tedious task; this is when turnkey rental properties become a great solution. Rental properties are incredible passive; they allow you to generate cash flows at distance, while other people who are specialized and professional do all the hard work for you. Whether you are a new investor, or a seasoned investor looking to diversify your portfolio or invest with no-hassle, investing in rental properties is something you should not miss.


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