Investing in residential real estate may sound like an easy and fun source of secondary income, but before you jump in the deep end, make sure you are prepared for the world you are about to enter.
Do Your Research
Take courses, read investment books, go to a seminar, or engage in any other learning process that helps you to gain confidence to make decisions. The Huffington Post suggests that any books, courses or seminars be about how to select locations, value properties and evaluate the rental market. Your success will be based on your due diligence and most of all buying right in the right area.
Find the Right Location
Investopedia suggests looking for low property taxes, a decent school district, a neighborhood with low crime rates, an area with a growing job market and plenty of amenities like parks, malls, restaurants and movie theaters. School districts are a major factor in the ability for a house to resell in the future. The Consumerism Commentary writes that rental properties don’t always make good neighbors, but there are a few tricks to making it work.Overall, it’s important to find a community where your rental property will have a good chance of being accepted. The ritziest corner of town may not be it. On the other hand, it’s hard to find and keep good tenants in bad areas, where crime rates may be higher.
Pay Down Debt
If you have unpaid medical bills, student loans, or children who are getting ready to attend college, now may not be the best time to invest in real estate. Work on paying down any existing debt you have before investing in residential real estate.
Secure the Down Payment
A down payment on an investment property will not be the same as the one you needed for your own home, so be prepared. You will need at least twenty percent, given that mortgage insurance isn’t available on rental properties.
Remember the One Percent Rule
This is a general rule of thumb that people use when evaluating a rental property. If the gross monthly rent equals at least one percent of the purchase price, they’ll look further into the investment. If it doesn’t, they’ll skip over it.
The Balance uses the example of a $200,000 house, using this rule of thumb, would need to rent for $2,000 per month. If it doesn’t, then it doesn’t meet the One Percent Rule.
Do your research, find the right location, pay down any current debt, secure the down payment and keep in mind the one percent rule and you will be off to the right start in residential real estate!