Real estate property can prove very lucrative as an investment. While many focus on buying properties they can fix up and flip, others look to the rental potential for supplemental income. Buying and holding a property can mean generating wealth through the property value going up over time, but having renters occupy the property can also provide extra income along the way.
1- Make Sure You Can Do Actually Do It
One thing you need to do early with any rental property is be sure you can actually use it for supplemental income. Depending on the jurisdiction it’s in, there might be zoning requirements you have to follow, often at the municipal level.
Make sure that the property has the proper credentials and licensing in order to assure compliance with such matters. If you need help finding and verifying rental properties, then consider using the services of a rental compliance firm.
2- Know Where to Buy
If you’re just starting out, then look local. Even if you don’t want to do a lot of work for your passive income, there are advantages to literally staying close to home with your initial investment.
Secondly, look for standalone homes in good neighborhoods. They appreciate it better than condos and apartments or even lower-priced homes.
What makes a good neighborhood? For starters, it usually has multiple years of rising home values. Also, it should be in a good school district so you can draw in parents and families worried about the education of their current or future kids.
3- Avoid Tenant Issues
Buying in better neighborhoods also means you draw in better tenants. They’re typically more financially responsible and spend more on their rental home. They’ll also result in fewer issues or hassles you need to deal with.
To that end, do two things on your own to make life easier. First, contact them every few months to make sure they’re happy with where they’re living; occasional communication without invading their privacy can keep things peaceful for everyone. Second, avoid buying foreclosures; while they’re great for fixer-flips, they might have too many issues for renters to live without logging lots of maintenance concerns.
4- Have an Emergency Fund
If you have enough money to invest in rental property, then it’s probably because you do things right about money in your personal life. One of those is having a rainy day fund that could cover three to six months of your personal living expenses in the event your income gets interrupted.
You need to do the same for your investment property. Have a contingency fund that could cover three to six months of property expenses in the event of emergency repairs or just having to go that long between renters who provide income. You might even need it while you have renters that aren’t paying their rent, depending on the length and cost of the eviction process where the property is located.
If you want to hold property over time to let its value appreciate, you might as well rent it out for supplemental income along the way. You can use that income to pay property taxes and maintenance while also making some passive income on top of it all. Be sure the property can be legally rented, buy in good neighborhoods, avoid tenant issues, and have an emergency reserve fund.