Much has changed regarding the real estate market over the past couple of decades. While many were once eager to become homeowners, lots of Americans — especially the younger generations — would prefer to rent long-term rather than buy. An estimated 65% of households led by people 35 were renting in 2016, rising from 57% in 2006. However, this doesn’t mean that people aren’t buying property. Rather, they’re buying with the intent to rent their properties out and make an income. In fact, a survey by Better Homes and Gardens Real Estate indicates that 89% of American investors are interested in investing their money into real estate.
However, investing in real estate goes beyond “flipping” houses. Renting out properties long-term seems relatively simple in theory. But if investors don’t choose the right properties outright, they may end up losing more than they would gain. Properties must be assessed not as houses that the investors themselves would be interested in, but as potential income generators. With that being said, let’s explore what investors should keep in mind before investing in real estate.
Understand Your Market
Each real estate market is different. While there are potential renters in every market, it’s important for investors to have an idea of what they’re getting into before they invest in one area over the others. If a batch analysis can be done regarding a market before an investor makes any permanent decisions, it could save them from making a poor decision — whether that decision is making a renovation that won’t yield a return, or buying a property in the first place. A batch analysis of comparable rental property listings can also help investors understand what appeals to their specific market, and how they should market their properties. This sort of batch analysis can also assist in creating rent estimates — asking more rent than the competition can make a property dead on arrival when it hits the market.
Anticipate The Unexpected
Even if a property is quickly discovered and rented out, there are issues that can arise later. A rental property is a commitment more the landlord than the renter; even if a renter agrees to make regular payments, they can still easily fall behind. Though landlords can pursue legal processes when this occurs, they won’t necessarily be able to recoup their income. Even if investors do find the perfect renters, they may not necessarily stay around forever. An estimated 33% of renters move each year; while some finish out their leases, others choose to break their contracts. In other words, renting out a property can be “up and down”. But if an investor is prepared, it can pay off in a big way.
Work With A Management Company
One of the reasons why some find renting overwhelming is that they are — incorrectly — doing it on their own. A rental property can be managed by an investor alone, but this isn’t always the best decision, especially for the inexperienced. A property management company can aid in handling the more complicated aspects of renting out an income property. Property managers essentially act as the “men on the ground” for investors. They handle checking the property for damage before tenants move in and after they move out, and can help collect rent as well. For that matter, property managers can remain physically local to the area, whereas investors may or may not be. They’ll be able to advise on handling repairs, and serve as a liaison between the landlord and the tenant. While employing a property manager of course requires money, they’re usually worth the investment.
Again, investing in a rental property can be daunting at first. But it’s only as difficult as you make it — preparation is key. By using rent prediction tools and calculating methods like a batch analysis, as well as property managers, investors are now able to choose the right properties outright, and cater to renters conveniently.